Wednesday, April 20, 2011

LONDON (MarketWatch) — Is this the biggest bubble in the world?

While we are looking at international markets like China and the US, the biggest pop in housing has been London and that too select areas. Middle-eastern money is flowing into London along with Indian and chinese money. If the Mumbai market is so desirable for investors as claimed by the brokers how come these investors are ploughing money in London. "They think money is “safer invested in an apartment in Sloane Street than in a bank account in Damascus.” Now I have lived on this Sloane street during my stay in London and I have lost track of the number of Ferraris and Maserati's on that road. That is pure inter-generational wealth which is driving markets. Next time a broker tells you that Dubai folks are investing in Mumbai, point him to this article.


LONDON (MarketWatch) — Is this the biggest bubble in the world?

I hesitate to use the overplayed word “bubble.” But in the case of London property, it’s hard to avoid.

What’s happening here is absolutely ridiculous.


Housing data
Markets are being impacted by housing-sales data along with fears over northern European economies and a stronger Japanese yen.

Look in the window of any real-estate agent here and you think people have gone crazy — and then you realize that the prices are in British pounds, and that to convert to dollars you have to add another 60%.

Half a million pounds ($800,000) for a one-bedroom condo with a small garden on the southern, unfashionable side of the river Thames? Really? And $2 million for a modest two-bedroom condo in Chelsea?

As John McEnroe used to say at Wimbledon, you cannot be serious.

44 comments:

Anonymous said...

This has little to do with India's Housing Bubble. Comeon guys, discuss India, not the impact of solar flares or saturn rings to prices on ridge road in mumbai.

Anonymous said...

China, London and what next. This blog is slowly loosing its charm. Rather than discussing local issues, the blog is wandering in distance lands that have little or no relevance o Indians.

It has been interesting reading so far but time to say goodbye to fairy tales

All the best to readers and contributors

Anonymous said...

Probably blogger has realized that there is no point in hoping for bubble burst in India. It will never happen. The worst that will happen is stagnant market. Who will want to sell their paid off apartment/house at a loss?

Anonymous said...

My flat is worth 1,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 and 1 rupee

Anonymous said...

All the above comments are by one person who doesn't want prices to fall in India. He visits this blog to make sure he can tell people there is no bubble so that his interests are safe. Fool.

Think about Globalization, interconnected markets, Foreign investments and all the black money generated from these activities plus GOI printing.

India's bubble is the second biggest after Australia's and they all will burst. Net could be Australia and Canada. China is following them and then it will take down India. Prices will correct by minmum 60-70% as liquidity will evaporate from the country.

I'll never buy in this market and will never buy if this is the scenario. Others, it is your money and your decision. I'll play safe as I don't steal and have no black money.

Anonymous said...

@Anonymous above,

The 'Duniya' or world we live in is a bubble. No one know when it is going to burst. You, unlike other people, rightly recognize the financial bubble and don't want to be a player when it is active, Good for you. others like me may be fools trying to make sense of the current events and try to see if we can improve our living standards.

Good luck buddy

Anonymous said...

Anon above:

You don't have to own a house to improve your living standards. You can rent the same place for 1/4th the EMI and no headache. Why would you want to own? I'm not going to buy when I can save easily and earn 10% in FDs and just pay 1/4th the rent of EMI for a similar house. It also gives me independence to move in case job changes plus I've at the back of my mind to buy when it all corrects. Otherwise my savings will keep growing with no risk.

Anonymous said...

Anon above who thinks global events have nothing to do with the Indian market, just get your head out of your butt and ask yourself this question: why did the prices rise by 2-5 fold in various cities in India in the last decade? Where did the money come from? Surely, that money is going to keep coming for ever right? Think, Think, Think.

If you want news from India, here is something you might like:
http://www.moneycontrol.com/news/business/sbi-to-stop-teaser-loansmay-1_537372.html

Mumbaikar said...

Guys we are in living in the connected world of Facebook, Twitter,gmail, hotmail etc. Why did India had recession when It had nothing to do with US housing market? Few people from India might have invested in US RE at that time , but it affected India. So stop thinking locally. World is no more local. Why war in Libya is affecting oil prices when supply is only 2% of world demand. Just keep in mind currently all investor, big builders who had invested in RE is trying to exit market with manifold profit. It is in their interest to bit drum that prices will always go north. They have tools at their discretion to make all kind of news. So have patience and enjoy your hard earned money.

Mumbaikar said...

BTW choice is your's. I have flat for sale. Would you interested in buying? 12k per square ft. Superbuilt up area 830 (carpet 575). 99 Lakhs. If you believe prices will appreciate this year like last year you will make 40 lakhs in one year. Think about it.

Mumbaikar said...

Does anybody know cost of construction in Mumbai?

Anonymous said...

@mumbaikar: Cost of construction is pretty uniform across India, with slight variations in the labor component from state to state. It is about INR 1500-2000 psf for decent quality materials if you construct your own home. Apartments are slightly on the lower side due to shared costs and bulk discounts for raw materials. I would say INR 1500 psf.

Actually, this number is now becoming almost globally uniform due to the global pricing of commodities, mainly steel and energy (which affects cement, concrete, glass, finished accessory prices). Country to country variations are now mainly due to local wages for skilled and unskilled labor.

So, if you are paying 10,000 psf, you are mainly paying for the land price, which depends on three things, as they say in real estate: location, location, location.

Noworry Contractor

Anonymous said...

Being a contractor myself, I agree with the above, In western countries, 50% and above cost goes towards labour, heavy machinery rental, 25% towards land and the rest 25% for actual cost of materialss and includes the safety inspection costs by private andgovernment inspectors.

In Mumbai 20% goes towards land, 10% towards labor, 20% towards cost of material, inspection etc, 30% towards bribe and the rest 20% undeclared profit.

The construction in India is sub standard and requires constant maintenance. The safety factors are the least of priorities.

==> said...

The construction in India is sub standard and requires constant maintenance. The safety factors are the least of priorities.

==> Contractors above - thanks for insight for high level overview of construction costs.

It is unbelievable that total buying cost of Mumbai apartments are more then western countries at same time Mumbai apartments are low quality and Mumbai labor cost is less than western countries.

So there is wide gap between cost and quality. Wider the gap more the profit for sellers/builders.

Mumbaikar said...

Thanks for info on construction price.
The mind-blowing part is superbuilt up area charges. In Mumbai u pay for super builtup area; with no standard loading. In most cases it varies from 30-40%. That is more than enough for covering cost of actual construction. Rest is profit-bribe-land cost.
Parking lot is not part of FSI but even for that builder charges 4-5 lakhs. It seems to be there is no law exist in the country and if people don't care about it,

Mumbaikar said...

One of my friend bought flat a year and half ago. And guess what ....walls have leakage since first mansoon. Later on he realized that walls are not plastered from inside. Only coating of pop is applied on wall and painted there after. This is sheer cheating and with no quality control, accountabity builders are taking advantage of unaware buyers. Most of the people buy it for investment with holding period of 1-2 years so nobody cares.

==> said...

One of my friend bought flat a year and half ago. And guess what ....walls have leakage since first mansoon. Later on he realized that walls are not plastered from inside. Only coating of pop is applied on wall and painted there after. This is sheer cheating and with no quality control, accountabity builders are taking advantage of unaware buyers. Most of the people buy it for investment with holding period of 1-2 years so nobody cares.

==> Mumbaikar, thx, your friend might have purchased from cheap builder.

Also since when did India started being concerned about quality and water lekages and as such. All this is normal, well.. no lekage would be out of normal!

Also, I was planning to buy 1bhk in Mumbai in coming months. but with all this I may drop plans to buy and stay on rent. Will buy where and when it makes sense (will it ever?).

Anonymous said...

Here is something pertinent:

http://www.bloomberg.com/news/2011-04-21/india-builders-face-large-scale-distress-on-debt-trap-knight-frank-says.html

Anonymous said...

Very interesting information. In all probability, it looks likes the curtains are being drawn on the high profile realty show.

skeptic said...

Again I am trying to be rational. Indian RE will not collapse overnight, but deflate from the exorbitant prices. In Wakad Pune the prices have come down to 2500-2800 psqft (nice suburb for techie crowd).

Why would someone buy 1 crore property in "posh area" while they could just buy here.

per sq ft price in Wakad
In 2003 the price here was 1000
In 2006 the price rose to 2700
In 2008 it peaked at 3200
In 2009 the price was back to 2800
In 2011 the price is back to 2600

Move to another location then its totally different. Prices are 5-6 times that of 2003-04 prices.

On the other hand adjust for inflation (wrt price of Gold)-you will see Gold was $400 per ounce in 03-04 and its $1500 today 3.75x - which means any "worthy property" that was 1000 Rs per sq ft in 2003-04 if priced at 3000-4000 is still a worthy pick.
Inflation adjusted its still worth same. Anything beyond 4000 is pure bull sh!t.

So if you see the pattern the Bubble is definitely not as crazy in many suburbs where prices < 4000R. Apply the same logic to other Indian cities based on wages (proper Mumbai is exception due to its crazy speculation)

1) RE as an investment is only feasible for black money holders
Or NRIs

2) Unless India suffers catastrophic shock like an Earthquake in Bombay or war or civil unrest or a military coup, nothing is going to hit the economy that badly that the prices will plunge

3) If the overheated markets crash, Investors if unload property to gullible (government supported) banks and institutions before any collapse so the government will have to bail them out (try controlling that:Indian dysfunctional democracy wouldn't even let you protest democratically)

shayna said...

@Skeptic,

Gold is a extremely liquid asset. You can take your gold worth 1.5cr from Mumbai, Pune or Del to Cochin, Doon or Goa however you cannot take your overvalued flat from the metros to another city to sell.
If the flat is overvalued in A CITY, then nobody in that city will pay that price. Again GOLD can be carried anywhere. Hence stop giving a correlation between gold and property.
On the other hand there is a inverse relation as other asset classes lose favour gold attracts the investment. simply because it is a INTL currency. Here again every other asset class has a usefull value, the only USE of GOLD is in ornaments and very little application in Electronics.

So, anyone with basic commonsense can see that there is a huge liquidity infusion that has been sloshing for the last decade and over. It was called QE1 and QE2 in the west. GOLD price is evidence of the imminent bust as hard earned money gets parked in GOLD, to beat INFLATION.

House prices everywhere are in a bubble and have to correct.

skeptic optimist said...

@Shayna Agreed, but to what extent will the prices fall?

All I am saying that if the prices deflate or correct - they will correct to inflation adjusted prices. The bottom of the market will be decided on liquid asset like gold and not the worthless currency - US$ or Rupee.

General asset bubble is much vast than a housing bubble. In India where millions need housing - there is still intrinsic demand at every price range. The moment prices drop, people will start buying and maintain price at each level.

So really there wont be a sudden collapse in home values.

Anonymous said...

I made the 1st comment.

Housing price collapse in Las Vegas and Florida had little effect in New York. Most events outside India has little impact on prices in Mumbai. Dubai went down 60% but no impact on Mumbai. London & China RE will have little impact on mumbai real estate.

What is pertinant is, crackdown by US Government on NRI accounts in India. NRIs in US will reconsider investing in India and even start pulling money out.

skeptic's ghost said...

Not all NRIs are in America. So US policy on NRIs will not change anything.

FYI here in Arizona land is just 5.85$ psft. In heart of good neighborhood. For 5 lakh you wont even get 10x10 land in Pune.

If China lets its currency appreciate or US continues to spend the way, the value of the Dollar will collapse too. The only savior for dollar is that in a slowdown, where people want safe havens, the $ will still maintain its value due to America's internal stability and military power. A slowdown will dry up demand for goods and services and India and China suffer (that is why china and OPEC keep buying US debt as no one has so far replaced US's consumption that sustains the demand that gives us our jobs)

That will mean that $ investments will be worth much less.

Middle class working Indians are now powerful enough financially to own 2 houses one apartment in the city and maybe one cottage or farmhouse or villa in outskirts for weekend or holidays. (some rent out the other house). Everyone owns a car and can at least use it on weekends if not everyday. Most middle class Indians have traveled overseas and spent.
(not for those who fell in trap of having kids just because you didnt see that last thing India needs is more kids)

Unfortunately the biggest problem is that India's transportation infrastructure system is still young and decades behind (same for water and electricity).
Example 10 Underwater tunnels from Navi Mumbai to every eastern Mumbai suburb can completely re-write the need to stay near the local lines. 24x7 electricity in every village, town and city will make industries easy to run outside big hubs. Deregulated petrol and diesel will allow many to travel around without fear of paying too much.

Bottom line is that the bubble is based on good fundamentals but false promises, but its not likely that the vested interests that sustain it are going to let go of it easily. I am hopeful that global events will deflate the bubble but I am still not sure the market bottom.

Anonymous said...

A thought provoking comment and depicts the actual picture. Indians in US are not fools to stash/invest their money in India or Indian conncted banks. They very well know that information can be bought or sold from these institutions for a few bucks. Such is the nature of corruption in India. People may be helping their families financially, then it is a different aspect.
On the other hand, Indians (not NRI) are building their investment portfokios abroad, usunf their relatives,be it be caribbean, europe or south america wgere no questions are asked about funds. They siphon out money by manipulating import/export figures and in some cases hundior hawala. Thepolitical parties and the bureucracy is involved in this and therefore this has become legitamate.

The phenomenal rise in real estate prices is solely due to underground economy and has nothing to do with global financial scenario.

Mumbaikar said...

Property sales have dropped by 24, 20, 35% in Jan, Feb, March this year compared to last year in Mumbai. Same time rental agreements have gone by 30%. This data is from registration office. So guys hold on and see fire work in few quarters. This is encouraging data for bloggers on this site.

==> said...

Property sales have dropped by 24, 20, 35% in Jan, Feb, March this year compared to last year in Mumbai. Same time rental agreements have gone by 30%. This data is from registration office. So guys hold on and see fire work in few quarters. This is encouraging data for bloggers on this site.

==> Details from any Indians registration office are junk. They are fake numbers - do you think the property worth 1 crore is registered as 1 crore, my bet is that 90% of the time it is registered as 40 lacs to 60 lacs at the most.

so looking at that registration number yes, prices have declined. But have they? Show me a single seller that has reduced price by 25%... forget 25%, show me decrease of 10%.

Mumbaikar said...

Don't expect anything from Govt. All politicians have stake in RE. In Mumbai lot of politicians have invested in land years back. Just to name few Raj Thakre, Manohar Joshi, Narayan Rane. These are white transactions by opposition leaders. Can,t imagine abt black transactions. What abt ruling elite. So it is not in their interest to raise voice against price hike, affordability, etc. RE will only be corrected by buyers like us. Just hold on till fire work.

Mumbaikar said...

@==>
These r number of units sold not property prices.

Well for registration u can claim u r selling or buying property @ 1 Rs. But you have to pay duty on the Govt. decided base price which is fixed for pincode.

Mumbaikar said...

Mumbai flats are sold on super built area? What in trend in other part of India? Is it carpet, built- up or super built-up or hyper built-up area ?

==> said...

These r number of units sold not property prices.

==> My bad assumption.

Well for registration u can claim u r selling or buying property @ 1 Rs. But you have to pay duty on the Govt. decided base price which is fixed for pincode.

==> Any how does Govt. decide base price? - by recent sales? on sellers/buyers claims? on bank provided figures? On media advtgs?

and who decides (what body of govt.)?

and can that price be challenged in court of law?

==> said...

@Mumbaikar.. here is the list for Mumbai to burst your bubble for price decline. Is that decline in prices or decline of rate of rise.

http://www.box.net/shared/tcah9hfah9

Anonymous said...

You know why prices keep going up in Mumbai. Because investors can only invest in mumbai or other large cities, the money just keeps rolling over. In India, an investor will think 100 times before investing in land or flats where they don't know the local goonda/politicians/cops to protect their investments from illegal occupation.

Investors who started 10 years ago in mumbai real estate, made money, had no choice but to put it back into realestate in mumbai. As the number of investors grew, prices escalation increased. Will it reverse, when, by how much, how fast..who knows.

Where else would an investor put money, stocks, gold? No trust anywhere, atleast real estate is tangible, and you better know the seller of gold personally, or you will end up with something else.

==> said...

Where else would an investor put money, stocks, gold? No trust anywhere, atleast real estate is tangible, and you better know the seller of gold personally, or you will end up with something else.

==> There is no need to buy physical gold, buy ETF, stocks. Can be traded with click of a button.

Stocks, hmm... Most Indian companies manipulate their numbers to suit their need as there is no strong regulations else why would you have so many high priced scams! But you know what - now you can trade worldwide so can ditch shitty companies.

currency market is also wide open, invest with full knowledge of economy happenings worldwide.

All above can be traded with control, trust and knowledge.

RE is least tangible from above option.

Mumbaikar said...

@==>
http://www.box.net/shared/tcah9hfah9

This has good information. It seems to builders are still leaving in the heaven and has unity on price hike. Lets see how long then can put brave face.

If I would be builder I would do same thing...put brave face, hike price and then give discount at time of negotiation. Try to create picture that prices will always go up.
The missing part is how many people have booked or shown interest in the property exibited and what was turn around compared to last year or previous years.

Mumbaikar said...

• Location: Tilak Nagar, Chembur, Mumbai
• Area: 1300 Sqft
• Bedrooms: 3 BHK

Price: Rs.78,00,000/-
Note: 50% Payment in Advance & 50% Payment in Installment (Offer Valid Till 31st March, 2011)
----------------------------------
• Location: Tilak Nagar,Chembur, Mumbai
• Area of 970 Sqft
• 2 BHK

Price: Rs.78 Lakh (not negotiable)
-----------------------------------
Here is how builders are trying to raise money.

Sale one @ 30% discount rate with 50% advance payment.

That shows desperation of builders to raise money. This may be one of the case in public domain.

GSM said...

Why worry about prices not going down in terms of Fiat Rupees. Compare in terms of real money Gold and Silver since 2008. Why not hedge ourselves instead of being a EMI slave. It is my belief that ~20Kg of "PHYSICAL" Silver should be able to buy a house in 3-5 years. Let's wait and see...

Mumbai_Mama said...

@Mumbaikar Bhayya,

I don't know where you are getting information from, but your sources are wrong. You cant get anything in Chembur area for 7800 per sq, ft. Prices start from 9,500 onwards, the cheapest located near the slum boundary. As you move to more desirable areas, it reaches 14, 000. It is the same scenery in goregaon, malad, kandivili , borivali areas. In malad west, some places are quoted at 17,000 /sq. ft. You can verify this from any reliable real estate agent. Do not go by newspapers.

Commercial properties near station are quoted from 10 crores to 50 crores for 100~200 sq.ft and hardly you find vacant shops . There are 10s of thousand people owning such properties but living in chawls or dilapidated buildings. It is their off spring that are buying places paying in crores.

The banks have very little to do with real estate and property developers do not depend on them. There are more powerful underground banks or networks that finace and support the illegal enterprises. For the last 5 years, the channels to belgian, swiss, uk outlets used to hoard money are slowly being chocked and this money is being splashed or invested in Mumbai.

prices will only decline if there is a massive construction boom. This is not in the horizon because of slums, land and other infrastructure problems

Mumbaikar said...

@Mumbai_Mama

--Commercial properties near station are quoted from 10 crores to 50 crores for 100~200 sq.ft and hardly you find vacant shops.

You may have some truth in these figures, but these are insane figures. Even if you have that kind of money you need to make 1 cr and 5 cr. per annum profit from these places just to earn little over fixed deposit. Either I am drunk or you are in company of people who are shitting gold every morning or twice a day.

Anonymous said...

Mumbai mamu is right. There is a family living in my building near libery garden malad (1 br, kitchen) There are total 8 people living in the flat, that include a couple, their child, 3 bachelors,1 spinster, and their mother. They own a garment shop in nataraj market and according to one of them, they paid 2 crores for the shop some years back and now it may be worth 10 crores. I dont think, with all of them working make 1 lakh a month

I too live in a 1 b/r flat. I find the place 2 small for 2 of us, I have been wondering how 8 people live in a 500 sq.ft space.

Anonymous said...

well all this analysis and paralysis is useless, because I said the same thing a year before and some intelligent reader (must be some MBA) said I am a fool and he told me law of demand and supply works everywhere. well I want to meet that guy and if can explain me in brief at-least about this anomaly. Forget about garment shop, I know even the belt shop opp malad station next to hanuman mandir, cost two crore where two people can hardly stand?

And dont we know that all real estate belongs to corrupt politicians and are we living in fools paraise to assume that they will allow it to crash?

the same garment shop will cost 15 crore next year and we will be talking same as we are doing now.

Anonymous said...

As I see it, there is a planned strategy being played by Politicians and Top govt. officials to convert their black money to white.
These people make a lot of black money and no one should have a doubt on that. With this money, you can either buy gold, or real-estate or send it abroad through hawala.
The real-estate part works as follows: Buy properties/land by paying very little white and lots of black in areas where circle rates are low. For example, in Gurgaon, a piece of land which costs 1.3 Cr in the market has a white component of only .3 crore. Once everyone has bought, govt. comes out with a circular saying the circle rates are being doubled or tripled (if you don't believe me, search for Faridabad circle rates which were increased 5-10 times by govt. recently in one swoop). So if circle rate is tripled, this land can not be sold for less than .9 Cr of white money. Voila! From 30 L you have just gone to 90 L in white - which means 60L of black money has been converted to white. If you did that in a govt. amnesty scheme, you would have to pay 45% tax even if govt. promises not to prosecute you. Which means you just saved 60L * .45 or 27L. Now if land prices don't go up for a year of two, would they really care?

Anonymous said...

Every big boom has a equally tough bust. Real estate is just a part of a big game.

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