Sunday, June 26, 2011

Aaj ka Mahabharat.

Pure Genius

132 comments:

Anonymous said...

Nice Video.

I just enquired Rustomjee in Thane , 91 lacs for 2 BHK with 1050 sq ft approx,

2.5 bhk for 1.05 crores

It has been bye bye Mumbai for long time ...

It seems Bye Bye Thane or MMR too ...

Anyone knows any good projects in Pune , ready possesion for 60 lacs 2 BHK ?

Anonymous said...

Advani is no Krishna!

More like the guy who burned down the wax mahal

Anonymous said...

But Sonia Ghandhari and Rahul Duryodhana are brilliant

Anonymous said...

Diggy really is Shakuni mama.

Ramdevi is more like Shikhandi (or Brihannala), when he flew away from Ramlila maidan dressed like a woman (ramdevi is right!)

==> said...

Funny. If BJP is in power, there will role reversals I guess.

Thane RE 1+ crores is achievement. What does Mumbai have to offer in jobs for people to relocate and afford crores worth houses?

Biggest paymasters IT, Finance firms and all other outsourcing companies in next 2 to 3 years will move out to tier 2 and tier 3 cities or other country at this rate. Then what? Aam aadmi in vastra haran?

Anonymous said...

It is funny to see a lot of these stupid MBAs trying to profit from Stocks when they know the party in India is over. They will try to suck the last drop from it till they have to finally sell.

Friday Sensex up by 513 points, today it again goes under 18K.

Anonymous said...

http://www.kitco.com/ind/Lewis/jun232011.html

At some point, the emerging markets will come crashing down, but not because of any lack of trying on their own—emerging markets are as crippled by government as any developed world economy. Regulations, restrictions, and a general anti-business climate mean that consumers and investors alike will have to sit on the sidelines in gold and silver to protect their wealth.

How does this bode for Indian RE.

gOlDfInGeR

Anonymous said...

Indian Stock Party is over. Make room for Shorty now.....We are ready to take it down 25%...

Anonymous said...

India story is over!!!!

Realty stocks are down, there is massive debt load that needs to be paid and they are not selling any homes.

Tell me why someone will buy RE in India?

Anonymous said...

India is full of so many fools and speculators that highly qualified people even cannot understand the reality. In fact they are in denial and don't want to except the real economic conditions.

The time is now to short all stocks especially RE, IT, all construction related stocks. Also all metals.

There is so much speculative activity that people don't want to come out of their optimism. Their head is in their arse. Especially all the dumb people exported from Wall Street who first screwed US, then Europe and now want to do the same to India. All the big name investment groups are nothing but scams to loot general public and whole countries.

DingDing said...

yes vik, time for ramrajya !

==> said...

All the big name investment groups are nothing but scams to loot general public and whole countries.

==> Bingo! These investment firms produce nothing tangible. They sell virtual money and services. More over they hire top mathematicians and scientist to develop Financial instrument to further screw people.

What and how would the world be without these scamsters?

Mahabharat or Ramayana did have evil people but not investment firms.

polt said...

http://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png

We are on this chart somewhere for sure. The 50lakh or rather the 1cr :) question is where? Are we still on the takeoff stage with a long while to go?


It would have been nice to setup a poll here on this site.

==> said...

@ Polt:

http://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png

We are on this chart somewhere for sure. The 50lakh or rather the 1cr :) question is where? Are we still on the takeoff stage with a long while to go?


It would have been nice to setup a poll here on this site.


==> I guess we are between Greed and Delusion on the chart.

Sai said...

Not residential, but interesting nonetheless:

http://www.rediff.com/business/slide-show/slide-show-1-namaste-tower-a-reflection-of-indias-economic-boom/20110624.htm

polt said...

@said,
Many of your previous posts made me think you were bullish on RE in India.

If we are indeed near greed or delusion, then we should expect interesting times ahead.

One possibility is that the "new paradigm" was reached in 2007. Prices fell, have now recovered and people think its the return to the normal now.

==> said...

polt said...

@said,
Many of your previous posts made me think you were bullish on RE in India.

==> Oh heck no, I am not bullish, fundamentals do not agree with reality in India. My posts are more to state the facts of ground reality which are contradicting to laws of gravity. :-)

If we are indeed near greed or delusion, then we should expect interesting times ahead.

One possibility is that the "new paradigm" was reached in 2007. Prices fell, have now recovered and people think its the return to the normal now.


==> Return to normal - how? People haven't even felt the taste of downturn. Downturn for 1 quarter and hell will break loose. Do you think Indians have heart and attitude to bear loses? Most of them do not even move their ass for good opportunities from one suburb to another forget states. Only poor people do.

polt said...

@said
"Do you think Indians have heart and attitude to bear loses?"
It does not matter whether we have it or not. When losses come one just has to grin and bear it. To me the following sequence seems to eerily parallel to what happened in the West.

1. Early phase- 2003 onwards. Interest rates are lowered. People start chasing higher yield in gold/equities/RE.
Buyer books house, prices rise even before occupation. Big gains on a leveraged bet. Everyone is happy (buyer, builder, banker). No one gives a crap about the rental yield that the asset can produce. Everyones uncle and aunt is saying buy real estate.
2. Things mostly hunky dory except for a blip in 2007.
3. 2009 - Prices rising, but RBI starts tightening the screws now.
4. Builders face tight cash flow issues. So what does he do, coax/bribe PSU bank honchos to provide/extend loans on favorable terms. CBI gets news of this and puts honchos behind bars. Cash flow issues worsen.
4. RBI continues tightening the interest rate screws. Eight consecutive rises so far. Buyers start to think about the EMI burden now.
5. Builder now borrows from Gujju merchants at an astounding 30% pa!!, in the hope that buyers will return soon.
6. Some builders see the writing on the wall and offer discounts. Some buyers step in, but most others are wary, or still cannot afford or have smelt blood and wait for prices to fall a bit more.
7. RBI is merciless. Ten consecutive rate rises and no signs of stopping. EU/US economies dont look too good either. Dollar gaining strength. Indian stock market not yet crumbled, but showing signs of weakness.
8. Builders look around. 2 years of inventory has piled up, more coming online in the next few months. Gujju merchant/loan sharks/Bankers are at the doorsteps now.

This is where we are now. If prices fall, banks will also become careful about giving home loans. This is what worsened the RE crisis in the West. Lending came to a virtual standstill.

Opinions on what will happen here next are welcome.

Pawan said...

@polt


Prices fall 20%. Banks stop giving loans. Gujju seth, flush with money, buys 50 apartments paying 10% downpayment. Waits for 6 months. Interest rate cycle turns. People fall over each other buying in a scramble. Gujju seth doubles his money in 1 year.

polt said...

@Pawan,
Could be. But interest rate cycle shifts have done nothing abroad. Base rates are close to zero (0.5%) and it has not stopped the blood letting in the RE sector. Mean reversion on in full swing there (See link below for one example. US too has same issue).

Will happen here for sure, but timing unknown.

http://blogs.telegraph.co.uk/finance/andrewlilico/100010665/a-little-noticed-milestone-this-week-house-prices-will-have-fallen-over-30-per-cent-in-real-terms/

==> said...

Real issue in West is jobs, earning sources. With automation, technology, labor regulations, and offshoring west has less jobs within the country, therefore people has less money to spend and taking on more more debt to keep on par with their old lifestyle.

India has huge chunk of offshoring jobs. India doesn't produce anything on it's own for themselves. As long as this is in play I see no slow down or RE correction.

No I am not bullish on RE India. Last few years we have see earnings growing exponentially in India majorly due to FII and FDI. But this cannot continue forever. My guess is another 2 years, we will see bloodbath. Right I just want RE to going to 2 crores instead of average 1 crore - Sooner the better for correction to kick in.

shailesh said...

So Dubai prices can drop 60% (from $3000 to $900), but our good old Mumbai can not drop... Also I wonder what is penalty in Dubai for not delivering projects on-time...

For $900/sq ft, get your own pad in world's tallest tower

The rates for the world’s tallest tower Burj Khalifa in Dubai is testimony enough to the correction the Middle East market has witnessed. According to sources, what sold at more than $3,000 per sq ft during the peak period is today at around $900-1,000 per sq ft.

Some real estate consultants believe Dubai is a good bet for the medium-to-long term. But given the slowdown in the region, the focus is on India all the way for the developers now.

==> said...

Just heard one on my relative recently bought 2BHK for 95L and booked another bigger one for 1.5Cr. Where the hell do they get this kinda of money?

Pawan said...

@said, @polt

Yes correction will happen but how soon or how much is anybody's guess. I do see people turning disinterested now because of high prices but it will take more than just a temporary dip for speculator/investors/financiers to get out of RE and that is when any meaningful correction will set in.
My time frame for that is beyond 5 years. A 10-15% drop can come anytime.

Anonymous said...

" RBI continues tightening the interest rate screws. Eight consecutive rises so far. Buyers start to think about the EMI burden now. "

Don't be fooled by interest rate hikes. If RBI is tightening interest rates, then why is inflation still so high? Why has the Rupee barely budged against the US$ (itself a structurally very weak currency)? If the RBI was jacking up real interest rates, then the arbitrage opportunity presented by the US$ with 0% interest rates and the INR with a high interest rate % would result in a massive influx of money into INR, bidding up INR into new heights. WHY HAS THAT NOT HAPPENED?

The answer is simple, the GOI and RBI are printing MASSIVE AMOUNTS of money on the side to keep up the "dirty peg" that the INR has with the US$. India is following the exact same policies as China which also has increased its interest rates without making a dent on inflation (because the peg of the Renminbi to the ever-declining US$ keeps driving down the purchasing value of the Renminbi).

RBI/GOI don't give a toss about inflation or how it affects the common man. They are worried ONLY about how it affects the well-connected business elites and their henchmen in government.

"Opinions on what will happen here next are welcome."

Absolutely nothing will happen. This is India. If the real estate market crashes, the GOI will simply print gazzilions of Rupees until house prices are stabilized again and force banks to continue making out loans to their developer buddies (just like they did in 2008-09). Repeat. Rinse. Repeat.

==> said...

Absolutely nothing will happen. This is India. If the real estate market crashes, the GOI will simply print gazzilions of Rupees until house prices are stabilized again and force banks to continue making out loans to their developer buddies (just like they did in 2008-09). Repeat. Rinse. Repeat.

==> so 1cr RE will be 2cr in 2 years? how about people's earnings, will that double too, I mean from 10 lacs average to 20 lacs? how about cutting edge 'cheap labor', will we have more cheap labor? how about interest rates - will that decline?

US is in mess now because of all these stupid theories. How will these theories help India and how differently?

Mumbaikar said...

Dont be in denial. US had same situation. Till 2007 everybody was under impression that property prices can only go up, it will never come down. So buy at low and sell at high and walk away with multiple-million $.

This exactly is scenario in India now. Talk to anyone and you will hear property prices will only go up. So advice is buy now and double your money. People who cannot afford, not eligible for loan are borrowing money from relatives, friends whatever way possible to gain from current RE boom. But most of the time these are the one who suffer a lot when boom turns into burst.

India had correction in 1999. I bought my house for 30% correction price and then prices were flat till 2004. This time will come again.

==> said...

India had correction in 1999. I bought my house for 30% correction price and then prices were flat till 2004. This time will come again.

==> But at that time we didn't have massive print presses by US and GOI. We didn't FII and FDI inflows. We didn't have offshoring nonsense. We didn't have access to many technology advancements from west. We didn't have consuming attitude.

Is this time different?

Anonymous said...

India cannot print forever. They would become Zimbabwe. SO far they could get away with it with only 20% inflation due to a lot of FDI/FII money coming in. But this will not last forever.

The market will crash by 60%. It is how long the GOI can postpone it, but the crash is inevitable.

Mumbaikar said...

@=>
India had everything u mentioned in 1999 except US was not printing at that time neither GOI. One more factor u need to consider is nobody was behind Swiss bank at that time to disclose accounts details, but many countries are now. So many Indians may be channeling money to India via FDI channel etc.
As every good thing come to end (good for builders and babus) one day, bad thing takes over. Wait for this transition, only change is constant in this world every thing else ends one or other day.

polt said...

@anon - "RBI/GOI don't give a toss about inflation or how it affects the common man. "

Our politicians may be corrupt but they are not stupid. And even the dumbest politician here knows that no amount of money can save his seat if he or his party is seen as having brought inflationary misery to people. Govts have lost elections over onion prices in the past !!

Wonderful thing democracy.

REBear said...

@said

==> But at that time we didn't have massive print presses by US and GOI. We didn't FII and FDI inflows. We didn't have offshoring nonsense. We didn't have access to many technology advancements from west. We didn't have consuming attitude.

Is this time different?


It always looks like printing money will cause asset prices to go up. Example, US and UK where despite money printing property prices are falling. Its a different issue that if money was not printed how much fall would have taken place.

The money that came through FII inflows can always go back - it never asked us before coming, and will not ask before going out. No time or place is different, its the economic cycles that prevail. Its foolish to believe that in technological advanced age recessions and asset bubble formation/burst can be avoided.

polt said...

agree with REBear and Mumbaikar above.
My guess is that the liquidity in India (and the corresponding high inflation) is because the dollars printed by Uncle Ben are finding their way to high yield/growth locations (primarily Asia).

The classic sign of any bubble is when people buy an asset simply in the hope that prices will rise without caring about the income that the asset generates. This has been the case through the ages (tulip bubble in holland 1600s, south sea bubble in UK 1700s, internet bubble 2000). I think house and land prices here are the same. Pretty much everyone I meet say prices will never fall.
Be afraid when everyone is greedy and vice-versa.

Mumbaij said...

If you valuate RE today in gold price of property haven't been changed over generation neither anyone's salary. In 1999 gold was 4000-5000 / 10 grams. I paid @ rate of 5 grams / sqft.

Currently gold price is 22000 /10 grams and asking rate in my area is 8000-9000. So actually prices has fallen marginally instead of going up ! It is devaluation of money causing property and other asset value to appreciate. Unfortunately you don't get loan to buy gold.

Intact if you do calculation salaries have reduced over last 10 years in terms of gold, just do the maths and you will be surprised.

==> said...

If you valuate RE today in gold price of property haven't been changed over generation neither anyone's salary. In 1999 gold was 4000-5000 / 10 grams. I paid @ rate of 5 grams / sqft.

==> Then why is India shining? Then why Asian emerging markets are boasting of their richness? All fake?

I envy many middle class or poor class that have made crores just buy buying/holding RE. They put many to shame.

Anonymous said...

"It is devaluation of money causing property and other asset value to appreciate. Unfortunately you don't get loan to buy gold. "
This is true to a certain extent but does not tell the whole story. An acquaintance purchased a villa in Delhi in the 1975 for 3 lakhs. Today, the villa is worth 10 Crores. If he had purchased gold in 1975, it would be worth less than half that right about now. So you cannot attribute the entire price appreciation to currency depreciation.

So what is going on here? A major problem is supply. Although land in general is plentiful all over the country (just take a domestic flight from Delhi to Kanyakumari and glance outside the window outside the big cities and you will see what you mean), there is a severe shortage of zoned land in India stemming from corruption and the cozy relationships developers enjoy with government. This is further compounded by poor infrastructure that prevents tall buildings from being constructed (no 24/7 electricity means stuck lifts and water shortages). In Chennai the tallest apartments are no higher than about 10 storeys tall. If India could have the kind of zoning density that cities like Hong Kong, New York or Singapore have, property prices would collapse overnight.

Bottom line, the folks who had the resources and foresight to buy property in India a decade or two ago (the kind "said-->" keeps referring to with envious eyes) were smart enough to realize that the combination of an incompetent, corrupt political class and an illiterate, superstitious population that breeds like rats would place real estate squarely in a secular bull market for some time to come.

Now, can real estate prices fall? Yes, but not in Rupees. If there is one thing we have learnt over the past 5 years, it is that the world's governments will do anything (including printing an unlimited amount of money) to prevent nominal asset prices from falling. If Indian real estate crashes it will crash only if you view the prices in Swiss Francs, Gold or Silver terms. It will not crash in Rupee terms because the Rupee is a constantly fiat currency that is not limited by any fetter on how much the Central Bankers can churn out.

Anonymous said...

“My guess is that the liquidity in India (and the corresponding high inflation) is because the dollars printed by Uncle Ben are finding their way to high yield/growth locations (primarily Asia).”

Nonsense. If dollars are being exchanged for assets in India (Asia), then the Rupee must rise sharply against the US dollar. However, the Rupee (unlike the CAD, CHF, AUD, NZD or GOLD) has barely budged against the dollar.

Inflation is high in India because of unremitting money-printing and a deliberate policy choice by the government to keep INR weak to aid exporters at the expense of crushing the middle class.

Pawan said...

Now, can real estate prices fall? Yes, but not in Rupees.

I do not agree with this statement. And there are numerous ways this can be explained.
1. Reversion to mean. Classic example is Sensex. It rushed from 3000 to 21000 from 2001 to 2007 giving 30%+ YoY returns. However if you extend the period to 2011, the YoY returns are about 20%. If you further extend the time period from 1990 to 2011 then the return comes to only about 12%.
Clearly it all depends upon what time period you are looking at.

2. Industry will mature.
2G/3G spectrum is as scarce as land. Is as controlled by the politicians as land and still call charges have fallen from Rs 20 or so per minute 20 years back to where they are now. Once the number of people who could afford to pay 20 Rs per minute exhausted, telecom companies had to cut costs to include more people into their customer base. RE companies are behaving arrogantly as they do not need customers now. Some day they will.

3. Salaries will stagnate.
In last 10 years that I have been working, my own salary has gone up 10 times. Would it go up another 10 times in next 10 years. I see zero chance of that happening. If that happened, I would be earning what my company's CEO earns in USA!
(OK, just in case this point seems to be going against my own argument, starting salaries are up only 100% in last 10 years unlike RE which is up 500%.)

I am already bored. I could write a few more points but then whats the point. It will happen when it has to.

Guruji said, be fearful when others are greedy and be greedy when others are fearful.

polt said...

@anon "Inflation is high in India because of unremitting money-printing and a deliberate policy choice by the government to keep INR weak to aid exporters at the expense of crushing the middle class."

That is because the govt is being forced to do so. We dont have a hard peg like the yuan-dollar, but we do have a soft-peg, and the govt has no option but to print/buy if dollars find their way here.

Also agree with Pawan that the so-called land shortage is artificial. Besides, our cities can easily grow vertically. Here in Bangalore, we do not have a single building that can genuinely be called a skyscraper.

Speaking of returns, the longer the time period the better the data.
As an interesting titbit the best performing stock market over the last 100 years was Australia (real return of 7.5%)
http://seekingalpha.com/article/220571-the-worlds-best-stock-market-can-be-found-down-under

Real estate real return over the same period in US was <1%. Search for case-schiller index. For even longer data history search for the Herengracht index of Amsterdam. 350 years of real estate prices tracked - 0% real return.
We will be no different. We are the same flesh and blood humans subject to the same delusions and hysteria and fear.

Anonymous said...

“Reversion to mean. Classic example is Sensex.”

The Sensex (or rather, the yields of the stocks that comprise it) have to compete with nominal interest rates. Since nominal (and I stress *NOMINAL*) interest rates are going up, it is no surprise that the Sensex is going down. However, I don’t expect that to stay the case for long.

“2G/3G spectrum is as scarce as land. Is as controlled by the politicians as land and still call charges have fallen from Rs 20 or so per minute 20 years back to where they are now.”

Prices have fallen because of advancements in technology that permit high-volume multiplexing over limited bandwidths. It has nothing to do with demand and supply. The demand for bandwidth has sky-rocketed over the years. However, productivity gains in this sector due to technological progress has kept pace with and even exceeded demand.

“In last 10 years that I have been working, my own salary has gone up 10 times. Would it go up another 10 times in next 10 years. I see zero chance of that happening. If that happened, I would be earning what my company's CEO earns in USA!”

Your salary will go up 10 times in the next 10 years. But you will not be earning what your US CEO earns. Hint: You have made the fallacious assumption that the value of the INR will remain constant with respect to the US$ over this period.

“Guruji said, be fearful when others are greedy and be greedy when others are fearful.”

I’m definitely fearful. I’m super-bearish when it comes to Indian real estate. I agree that there will be an imminent crash. But the crash cannot be measured in Rupees. If you wait for the crash to come in Rupees, it will never come. You can count on the GOI’s printing presses to run non-stop night and day if and when there is a nominal decline in real estate prices.

==> said...

USD is fiat currency, so is INR and they have no correlation to each other directly. There is no common ground which ties these currencies together except when these were backed by like units like gold.

So printing more INR does not affect USD, but printing more USD does impact INR because of FDI and FII - One way traffic of economic benefit to an country.

As Anon@7:03 said on blog- Only way this can continue is printing more money and simultaneously FDI/FII inflow. But this will not last. Either of one stops, we will see crash, for sure.

I don't think FDI/FII inflow to India will continue once USA has lowered it's standard of living (consumption). People in USA are getting desperate to pay their bills, how long can they survive on printed money (credits).

skeptic's ghost said...

There is no QE3 or Bond buying - else Obama will lose. A Real twist in the story will be delivered by the American voters in 2012 elections.
If any Tea party supported candidate wins, they will stop the chapai of $$ and also might default in one go on US debt.
This will bring down Chinese and Indian real estate as the "holders of assets" will panic sell for whatever they can get.
As long as USA is the worlds prominent power - it calls the shots (and someone already mentioned that it will for the next 20 years).

Bernanke Geitner Greenspan Paulson are all hand in glove with the greedy Wall street bankers who come up with derivatives to make money out of thin air.

If the new US govt in 2012 end has the conviction to end this nexus, they will do it - no printing - no debt - no buying - no demand. Exporting economies will then beg Europe to continue buying but Socialist Europe has dug its own grave by stifling productivity.

So then the economy will come on the floor on basis of real commodities and real demand. That time the people holding gold will have no good use of it. (because Gold is just a hedge and exchangeable - gold doesnt drive your car or generate electricity)
In such a slump every thing will be down - and US will start drilling oil and extract more gas mine more uranium and coal, to recover its energy economy which has been kept on leash by the left wing environmental nuts.

The Eras of bubbles is over - this present dot com bubble with Facebook worth 100 billion $ and Zynga being worth 50 billion is as fake as the money in their farm game.

The biggest loser this decade will be China followed by India and some other Asian markets since their leverage is unrealistic like that of the dot cons

Anonymous said...

Reminds me of a story of a mad man.

He would roll a big stone up the hill everyday and let it drop down. Then he would come down and laugh and say all this is for nothing my friend. So this is how real estate will be in India.

Real returns can only be measured in gold my friends. So stay long and hedge on gold. YOu will come out ahead.

gOlDfInGeR

Anonymous said...

“USD is fiat currency, so is INR and they have no correlation to each other directly. There is no common ground which ties these currencies together except when these were backed by like units like gold.

So printing more INR does not affect USD”

“Said”, do you really think before sitting down to type?

If you print more INR, then there is a surplus of INR relative to USD. This will drive the exchange rate of the INR down against the USD (or vice versa in case USD is being printed). It is ignorant to state that “printing more INR does not affect USD”. The exchange rate of any two currencies (irrespective of whether they are “backed by units like gold”) is dependent on the relative scarcity of each currency with respect to the other.

If Zimbabwe prints a gazillion Zimbabwe dollars, then the exchange rate of the Zimbabwe dollar will fall with respect to USD regardless of the fact that there is “no common ground which ties these currencies together”.

==> said...

The exchange rate of any two currencies (irrespective of whether they are “backed by units like gold”) is dependent on the relative scarcity of each currency with respect to the other.

What is Currency Pegging?

http://questions4thoughts.wordpress.com/what-is-currency-pegging/

little snapshot for you from article ==>

Currency pegging is the idea of fixing the exchange rate of a currency by matching it’s value to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold or silver.

In 1898, the Indian rupee was tied to gold standard through British Pound. Prior to this, the Indian rupee was a silver coin (‘raupya’ in Sanskrit means silver), which made the rupee to be pegged at a value of 1 shilling 4 pence (i.e., 15 rupees = 1 pound). In 1920, the rupee was increased in value to 2 shilling (10 rupees = 1 pound). However, in 1927, the peg was reduced to 1 shilling and 6 pence (13.33 rupees = 1 pound). This peg was maintained until 1966, when the rupee was devalued and pegged to the U.S. dollar at a rate of 7.5 rupees = 1 dollar (at the time, the rupee became equal to 11.4 british pence). This peg lasted until the U.S. dollar devalued in 1971.

Officially, the Indian rupee has a market determined exchange rate. However, the RBI trades actively in the USD/INR currency market to impact effective exchange rates. Thus, the currency regime in place for the Indian rupee with respect to the US dollar is a ‘de facto’ controlled exchange rate. This is sometimes called a ‘dirty’ or ‘managed’ float.


“Said”, do you really think before sitting down to type?
==> nope, I leave that to you. :-)

==> said...

To add to above RBI manages exchange rate by buying or selling USD. I thought market controlled the rates... but looks like RBI/GOI at work. Also black money is not controlled by RBI - how does that control exchange rates? how about fake currencies that are freely floating in market?

Another major factor affect rates is trade. Zimbabwe printed gazillion currency, but they had no buyers/trader for their currency. Do they have black and fake money in market?

GSM said...

I envy many middle class or poor class that have made crores just buy buying/holding RE. They put many to shame.

That was a once in lifetime oppurtunity of the debts wiped off with increasing income/ inflation.
Can you see it can be replicated again with RE now?. Once bubble has reached its peak, there is no way it can sustain. A case in point is the Debts of RE companies in 2007 peak vs now. Even after all the efforts of GOI to create inflation and bailout RE companies, the debts of RE companies are more than that of 2007 and yet the revenues and profits/ stock prices are no way near.

Pawan said...

Prices have fallen because of advancements in technology that permit high-volume multiplexing over limited bandwidths.

Construction technology has also evolved and we can build 20 storied buildings now where only 2 were possible/allowed 20 years back.

The demand for bandwidth has sky-rocketed over the years.

But still rates have fallen?
They have to. If telecom companies were to increase call rates by 10 times, would their earnings go up or down?
If RE were to double from here in next 2 years, would real estate companies' earnings go up or down?

Okay. Oil supply is limited in the world. If Oil prices were to double from here, what would happen? Would OPEC countries make more money or less?

polt said...

@goldfinger - "So stay long and hedge on gold. YOu will come out ahead."

Not really. Yes, gold has outperformed in the last few years. But take a longer view (100 years or more) and you will see that gold has just kept pace with inflation. Gold too reverts to mean.

Anonymous said...

"Not really. Yes, gold has outperformed in the last few years. But take a longer view (100 years or more) and you will see that gold has just kept pace with inflation. Gold too reverts to mean."

In Indian Rupee Gold has maintain it's pace with Inflation & devaluation & perfectly acted as store of value.

But think of Gold in USD terms. It was peaked at around USD 850 in 1980 and its now just 50% high after 30 years. Do you think it has maintain pace with inflation in USD terms? Do you know why? (It's a another story)

No it has not. Now Gold is behaving like Currency in USD terms because USD is loosing value.

So in case Gold which has not kept pace with US inflation for all this years can suddenly catch with it and if Rupee remain pegged with USD it can be work as store of value in medium term and can beat other class for return.

Anonymous said...

DLF selling land banks!! Is this the beginning of the end?

Would like to hear from some gurus here..

I remember sometime back I had said that DLF at Rs 350 or so looks like its headed much lower and some wag had commented that its poised to grow to Rs 600!

Well DLF price is at Rs 210 today when markets are racing upwards! and It looks like its going to go to go to Rs 100 or below!

polt said...

Markets have already punished over-leveraged builders. Oberoi seems to have escaped the axe as his books are debt-free or so they say. With complex off-balance sheet financing you never really know.

The shit will really hit the fan when banks start getting nervous and recall loans or refuse to roll them over or ask for greater collateral. These can be triggered by several items in loan covenants such as fall in share price (this is certainly a tick mark for most RE firms), Fall in land values (not sure about this), Fall in quarterly cash flows (tick), increase in interest rates (tick).
Big builders might survive the squeeze, smaller ones will almost certainly end belly up.

polt said...

@anon - See 600 year data for http://www.sharelynx.com/chartsfixed/600yeargold.gif

The last major spike was in the 1970s after the world went off the gold standard.
I dont see any consistent upward trend in this. So gold is at best a store of value, not something that can provide positive returns.

A common cognitive bias in investors is to give greater weightage to more recent events. So dont be influenced too much by the recent rise. It could just be a result of fear, which knowing humans will eventually be replaced by greed.

Besides I am guessing that the big leveraged gold ETFs abroad used by hedge funds too have played a role in the price rise.

==> said...

QE2 coming to an end in June. What is scenario - Increase in rates and decrease in Inflation?

Will RBI still raise rates (or decrease) when QE ends?

skeptic's ghost said...

If and when the Builders dump the land and banks will be left holding on to pieces of worthless land they can still sell it to end users - but they wont - the Bankers will float new ventures (they lend to businesses too) and make these guys buy and inflate the price for more profit.
Prices will fall only if Banks fail - and Governments wont let banks fail since that will collapse day to day commerce.

Investors holding on will just dump their inventory to another set of sucker investors (which may be genuine / FII/ DII / Banker floated cronies)

Again the end user is left in lurch - this is because the true demand and supply is fuddled by the bankster - here there everywhere.

Same for land and food and oil - there is abundant supply but the banks want profit.

Read "The Grapes of Wrath" by John Steinbeck - he quotes -

They (banks) breathe profits; they eat the interest on money. If they don't get it, they die the way you die without air, without side-meat.

The bank is something more than men, I tell you. It's the monster. Men made it, but they can't control it.

-- end quotes

There is no escape -
Even though my parents and I have combined property in Pune now worth "crores" I still live modestly, cook my own food, work extra hard and they dont even own a car. Sense of wealthiness by property ownership is fake. We are and will be slaves to either the Government (in socialism) or to Banks (in Capitalism).
I prefer the latter - my parents generation probably preferred the former.

Coming back to RE - The only hope for a price drop is that somehow the befuddled gap between demand and supply is cleared.
Good Neighborhoods will still remain more expensive (good is defined by location, access and amenities).
Another hope is that suddenly mass migration to cities in India is reversed - this can happen if there is an influx of good jobs in smaller towns and 24x7 electricity and good schools in these towns.

Till then I think RE will continue this swindle cycle.

Anonymous said...

“That was a once in lifetime oppurtunity of the debts wiped off with increasing income/ inflation.
Can you see it can be replicated again with RE now?. Once bubble has reached its peak, there is no way it can sustain.”

Of course I can. The way the system is rigged now is that you’re smarter than a rocket scientist if you’re a highly-levered debtor and dumber than a sack of door-knobs if you’re a prudent saver. Savers have been brutally and savagely raped by the World’s Central Bankers over the past 15 years.

If you have debt, all you have to do is wait until inflation catches up. Once inflation is high enough, you can pay off all your debts by paying back in depreciated currency.

Savvy, shrewd and cunning Indians have done exactly this, they’ve highly leveraged themselves by buying property at any price, knowing fully well that they will pay back the debt with monopoly money.

In case you haven’t noticed, PAPER MONEY HAS LITERALLY NO VALUE IN INDIA.

polt said...

"If you have debt, all you have to do is wait until inflation catches up. Once inflation is high enough, you can pay off all your debts by paying back in depreciated currency. "
Not so easy. Creditors are not stupid either. No bank can survive by lending consistently at less than inflation. This in turn is because savers will demand higher rates and simply move their cash elsewhere if bank yields are not high(beyond leaving some emergency cash in low yield savings account).
Home loans for example are running at around 10%, close to or a little more than inflation.

BTW, the news today was that growth in home loans has slowed down. Still growing, but slower than last year. The reduction has been biggest in the 30L+ loan category.

Anonymous said...

“This in turn is because savers will demand higher rates and simply move their cash elsewhere if bank yields are not high(beyond leaving some emergency cash in low yield savings account).”

Oh yeah, like where? Where has the saver managed to find refuge over the past decades of negative real interest rates? Bank yields have been lesser than inflation for over two decades now. Where has the saver managed to demand a higher rate than inflation?

The other thing you are missing is that the Banksters really don’t have to survive by being cautious or making prudent loans. They can afford to be as reckless as they want to who they will lend to and why because they know with 100% certainty that the World’s governments and Central Banks will never *EVER* let them fail.

THE GOI WILL FIGHT ASSET PRICE DEFLATION WITH HAMMER AND TONG IF THEY HAVE TO. IF YOU DON’T BELIEVE ME LOOK AT WHAT THE WORLD’S CENTRAL BANKSTERS DID IN 2008-09. And no, they will not give a RAT’S BEHIND ABOUT INFLATION OR ABOUT WIPING OUT SAVERS. They have open contempt for savers.

Just look at history. When I was growing up, a lakh was a very huge sum of money. A lakhpathi was considered a very wealthy man. A Crorepathi was someone wealthy almost beyond imagination. Today, a lakh is the monthly salary of many professionals and a Crore can't even get you a 2 Bedroom apartment in many Indian cities.

Seeing how richly debtors have been rewarded over the past two decades (and how badly savers have been SCREWED by Banksters) I’m currently working on getting into as much debt as possible as soon as possible because I know with 100% certainty that inflation will help me wipe out the real cost of my debts.

Anonymous said...

Anon above:

In US, people who saved didn't get much as interest income and hardly 1% in the past 4-5 years. But inflation is also 2-3% in US and now these people who saved have upper hand in buying all the foreclosed properties at their price.

My friend bought a house for $350K in 2007 and took a loan of $300K. I bought a similar house on the same street for $140K. He is losing big and I used my savings to make a 50% downpayment to the bank.

Who is the loser? Always remember that cash is king.

Anonymous said...

“But inflation is also 2-3% in US and now these people who saved have upper hand in buying all the foreclosed properties at their price.”

Inflation is only “2-3%” in the US if you believe the government numbers. Everyone knows that the US government numbers on Inflation are cooked. Inflation in the US is much higher than the official government numbers although I agree that it is nowhere near the kind of jaw-dropping inflation that we are used to in India.

”My friend bought a house for $350K in 2007 and took a loan of $300K. I bought a similar house on the same street for $140K. He is losing big and I used my savings to make a 50% downpayment to the bank.”

The US and India cannot be reasonably compared. First, the US has higher productivity levels than India which help keep inflation low even with unremitting money printing and exploding government debt. For all its faults and fiscal mismanagement, the US has Boeing, Microsoft, Intel, GE, Google, Apple, Exxon, Cisco and Pfizer. And India has…um…what does India have again?

If you go to any mall worldwide, the aisles are stocked with goods made in China, not just cheap trinkets, but iPads, Smartphones, PCs, Plasma TVs, Home Theatre Systems and the like. When was the last time you saw an Indian-made product in the aisles of a US or European mall (other than the grocery aisles)? India has a serious dearth of innovation and productivity. Much of this is hidden in phony statistics like the double-digit growth the GOI claims.

”Who is the loser? Always remember that cash is king.”

What do you think would have happened to a lakhpathi who in 1980 decided that “cash is king” and kept all his savings in cash?

polt said...

@anon - 'Oh yeah, like where? Where has the saver managed to find refuge over the past decades of negative real interest rates? "

My dear friend, its right in front of you. See returns on gold/equity/RE over the past decade and you will see where the savers are putting their money and pushing up these assets.

It is mostly pensioners/risk-averse savers who keep a lot of money in safe deposits that are getting screwed by negative real rates. So in some sense it is a transfer of wealth from these poor folks to the risk takers.

Anonymous said...

"My dear friend, its right in front of you. See returns on gold/equity/RE over the past decade and you will see where the savers are putting their money and pushing up these assets. "

Exactly my point. This is why it is a terrible idea to be a saver and a great idea to be a highly-leveraged speculator/"investor".

Thank you for making my point.

adil saif said...

Could be. But interest rate cycle shifts have done nothing abroad.
I see a lot good quality posts here.I have Noida Property Logix Blossom Greens Information. I think you and your blog visitor will like it.

polt said...

@anon - "This is why it is a terrible idea to be a saver and a great idea to be a highly-leveraged speculator/"investor"

Yes, if leverage works your way. Ask all those homeowners struggling with negative equity in the US/Ireland/Spain today and they will tell you the knife cuts both ways.

My point was that rates will catch up. I repeat, no bank can survive by lending below inflation. And if lending stops, you cannot have leveraged investment, ergo current prices will fall, because the rise in prices today is simply because folks are leveraging more and more. The reverse cycle (deleveraging) will set in like it has in EU/US/Japan.

BTW, the relation between home prices and inflation breaks down when inflation becomes very high or hyperinflationary. I will save that for another post for another time. Lazy weekend today :)

Anonymous said...

Advani = Krishna, What a joke. All politician are F***ing pimps. Frustrated “to be home owner”

Anonymous said...

“Yes, if leverage works your way. Ask all those homeowners struggling with negative equity in the US/Ireland/Spain today and they will tell you the knife cuts both ways.”

The homeowners in Ireland, Spain (and dare I say even the US) are “victims” of an environment in which inflation is relatively low. Their mortgages are not denominated in a currency that’s depreciating faster than an ice cream cone on a Texas sidewalk.

One lakh Rupees used to be a VERY big sum of money as late as 1980. Today, Crore is the new lakh. Actually, I take that back: a crore today has even lesser purchasing power than a lakh had in 1980. With one lakh, you could easily have purchased a nice apartment in a decent part of town in 1980. Today, you can’t even buy a serving of fresh dog poop with 1 Crore. I keep coming back to this example because it illustrates a very important point: THE RUPEE IS A MASSIVELY DEPRECIATING CURRENCY THAT HAS LOST OVER 100 TIMES ITS VALUE IN A PERIOD OF 30 YEARS.

Prognosticating forward then, it is reasonable to assume that by the year 2040, the Rupee will be worth 1/100th of what it is worth today. Now assume that property *values* (values, not prices) remain flat throughout this period, even then the nominal price of the property when denominated in Rupees would have shot up a HUNDRED times. Now assume that (for whatever reason, wars, tsunamis, productivity gains, epidemics, etc.), the *value* of property falls by 50% during this period, even then measured in RUPEES, property prices would still have gone up FIFTY times! You can see now, why shrewd and savvy Indians have calculated (correctly) that property is a surefire bet. Even if there is a temporary decline in prices, the secular trend and government policies strongly favour the homeowner.

Bottom line: in an environment of massive currency depreciation, endless money printing and untamed inflation, there is no way that you can have any meaningful decline in asset prices WHEN MEASURED IN RUPEES. The biggest beneficiaries are those who are leveraged to the hilt and the biggest suckers are savers, who are having their purchasing power forcibly transferred to leveraged debtors by GOI/RBI policies.

Anonymous said...

us/ireland/spain............ Why do you guys always compare India with these countries. Our situation is different

Anonymous said...

Anon above,

Really? Are we different? How?

Same past of money printing, excessive borrowing, RE bubble, massive raises for Govt. employees, corruption. India is no different. Just a time bomb waiting to explode. GOI can print again, Bernanke can repeat QE3 but for how long. Another year maybe. But this whole thing has to explode and will take India 10 years behind unlike EU countries.

ShashankRao said...

When I was single and getting 50K US salary 10 years ago, I was able to buy brand new flat in the Kandivali area. Now I am getting 100K but I can only dream of buying the flat in the same area of Kandivali.
My plan was to save money over the years and buy bigger flat in Dadar/Prabhadevi area but now I can only think of Pune/Kolhapur.

There is salary freeze past 3 years in the USA. Gas/Medical/food everything is becoming expensive. No good exchange rate either. I am now thinking of moving to India for better salary.

==> said...

I am now thinking of moving to India for better salary.

==> yes brother, India has incremental salary structure y-o-y hikes of 20% minimum. Your $50K 10 years ago is current salary in India for tom dick and harry. Just make sure you are working in offshoring client billing based company.

And yes you can expect salary almost equivalent in USA but no RE prices.

Anonymous said...

Sasank Rao

It is very easy to make $200K per year if you put your mind to it. Dont be stuck on a meager $100K salary, which will take you nowhere. Instead of moving to INdia and getting screwed put your time and effort in improving your skills, working harder and making more money. After all, if you move to India, you will have to work twice as harder to get half the lifestyle that you currently have in the US.

Cheers

gOlDfInGeR

Anonymous said...

"I am now thinking of moving to India for better salary."

Care to elucidate? US$100K is 45 lakhs per annum in INR before taxes. Can you really make more than that salary in India? I would be interested in hearing out your calculations.

Thanks

Anonymous said...

Id Indian salaries are more or same that if US, why would they offshore? This nonsense peopl etalking about 100K salaries in India. Some people who work as investment bankers make that kind of money or people high up in IT stuff who have many contracts and work 20 hours a day.

If salaries really go up that high, and rupee goes down in value, IT outsourcing will completely stop and would move to Malaysia and Philipines etc.

HP in India recently laid off all their managers who add no value other than boss around.

REBear said...

http://economictimes.indiatimes.com/markets/real-estate/Property-prices-begin-to-dip-shows-index/articleshow/9074486.cms

polt said...

I stay in a fairly decent residential area in Bangalore (wide roads, trees ,parks, etc). The land near my house is "worth" Rs 4500/sq ft today. No one knows why and how the valuation is arrived at. It simply is because people are willing to pay that much. So I decided to work backwards and apply some fundamental valuation principles. The results are surprising and would love to hear from others.
Basic finance tells us that the price of ANY asset is simply the net present value of the assets future income discounted appropriately. This much is indisputable fact. What makes this hard in practice is estimating future income and the discount rate. So as a proxy, people use earnings multiples. For stock markets it is around 15, lets say for RE (due to sentimental reasons, oh we indians are different , black money, fast rising rental income, etc) it is 20.
Now take a regular sized plot here (60*40ft = 2400sqft). Build a decent two storey house on it (say 35 lakhs per floor) and you can expect a rent of around 17K after maintenance. Further assume that you dont declare the income and no taxes are paid on it.
So total income that the asset generates is 17K*2(floors)*12(months) = 4L. Therfore the asset (land + house) is worth 20(earnings multiple)*4L = 80L.

Given that you invested 70L on the house, the just the land alone therefore is worth 80L - 70L = 10L => about 400Rs/sqft.

Why then are people willing to pay TEN times this amount? Or have I made some very elementary mistake in the valuation?

One thing I know is that fundamentals always reassert themselves in the end. History clearly shows that. Irrational exuberance always ends.

Anonymous said...

@Polt, great point, however you have not factored in future rent based on income. The rates are also based on people competing to stay at a given location based on proximity and convenience. Can we have a clue of your location? I am from Jayanagar so just checking as prices here are around Rs. 6500~8500 PSFT.

polt said...

@anon,
"however you have not factored in future rent based on income".
I have. Thats why the multiple (20 in this case). It encapsulates income and the discount factor. If you think income will grow faster, then multiples are higher. (Like for facebook, groupon, zynga, twitter currently).

But I do not see rental incomes growing faster than inflation currently.

I stay in RMV 2nd stage, close to Ramaiah college.

==> said...

All hola and hoopla is coming to an end. Just wait for consequences for end of QE. It will take couple of months.

Yes, pray that there is no more QE, more QE bigger the pain and bigger the bang for your saved buck.

QE2 ended on 30th June, time to wait and watch for interest rates to go up and feel the need for real money.

Party time or should I say party's over?

polt said...

@said -
Agree. For a long time I thought we might see a small decline in prices. But the more I read and research, I fear we are in for a major correction sometime in the future.
I read an RBI research paper a few days back, where they ran some statistical tests and found that most of the increase in land prices is due to low rates and easy credit. Increase in income played a small part.

Land prices where I stay have gone up 8 times since 2003 when my dad bought it. Thats 27% pa !! It screams "bubble" from every angle.
Mean reversion will be back with a vengeance. Guaranteed.

Whether QE3 or lack of it will be the trigger, time will tell.

Anonymous said...

“http://economictimes.indiatimes.com/markets/real-estate/Property-prices-begin-to-dip-shows-index/articleshow/9074486.cms


“The latest Residex released by the National Housing Bank on Friday shows that property prices rose only in six of the 15 cities covered by the residential price index -- which is a situation similar to what was seen at the height of the global financial crisis. It was only Mumbai, Delhi, Ahmedabad, Chennai, Lucknow and Pune that bucked the falling trend.


Yaaayyy!!! House prices have finally started falling in India!!! WHOOPPEEEE!!! Now we can all buy houses.

Oh wait, Mumbai, Delhi and Chennai have bucked the falling trend. Oh well, we can all buy in Calcutta then! CALCUTTA HERE WE COME!!!! WOOOHOOOO!!!!!!

Anonymous said...

For all you USA bashers out there...


For one, let’s talk currency. The Greek central bank does not have the ability to print the world’s reserve currency, nor can it print any currency for that matter since Greece is a member of the European Monetary Union and uses the euro, just like the big boys in Berlin and Paris.

Ben Bernanke may not appeal the Milton Friedman in you but let’s admit that he has performed some incredible feats to take trillions of bum loans off of the books of banks to keep the financial system operational. Monetizing debt, he was able to inject the economy with enough liquidity to avoid–at least for now–a deflationary depression.

Another advantage of the United States is its military, which has the power to project force around the globe. It helps to have lethal force on your side when it comes to putting weight behind your policies. God bless the men and women of the military who enable us to enjoy this advantage.

Finally, for all of its faults, the United States still attracts the world’s top entrepreneurs and scientists, from the boys at Google to legions of graduate students in engineering, medicine and physical sciences. With this lifeblood of business flowing through our veins, it’s not hard to imagine that the promise of great wealth will continue to innovation throughout the economy.

Sure, we’ve got a lot of debts to repay but who’s betting against us?

Happy 4th of July to all the ABCD's....

Anonymous said...

In case you did not know what an ABCD is. It is America Based Confused Desi, Emigrated From Gujrat, Housed In Jersey, Keeps Lotsa Motels, Named Om Prakash; Queit, Rabid (at times)....Well you figure out the rest....

==> said...

Only one question -

What happens if interest rates go up or down or remain same.

1. to INR vs USD
2. to Bank's earnings
3. to RE prices
4. to all offshoring jobs
5. to stock market
6. to your savings

Anonymous said...

If interest rates go up in India,
1. to INR vs USD
INR appreciates.

2. to Bank's earnings
Decline.

3. to RE prices
Decline.

4. to all offshoring jobs
Decline as INR appreciates.

5. to stock market
Declines.

6. to your savings
Go up.

Anonymous said...

Interest rates will not appreciate much in India now. I think another 25-50 basis points by the end of 2011 and that's it. that too if there is no world wide recession in the meantime. RBI/GOI is done raising rates.

If there is QE3, then inflation would be high again and more rate hikes will have to be there. But more hikes will bring the economy down.

==> said...

Interest rates will not appreciate much in India now. I think another 25-50 basis points by the end of 2011 and that's it. that too if there is no world wide recession in the meantime. RBI/GOI is done raising rates.

==> Really? do you really think RBI/GOI will be watching fireworks if USA hikes the rates? Just have faith that no more QE, then we will see where does GOI get money from to pay all the nakras in Indian economy. Do you really think Indians will gear up to pay high taxes.... or cut down on spending... take your bet.




If there is QE3, then inflation would be high again and more rate hikes will have to be there. But more hikes will bring the economy down.

==> Interest rates are hiked to control inflation and lowered to boost the economy. Just because easy money was in play doesn't mean rates can not go back to normal. It is different story when rates go beyond normal play.

Anonymous said...

USA will not hike rates for a long long time.

==> said...

USA will not hike rates for a long long time.

==> Ok, what are they going to do to attract private investors? They need to get their economy going without printing more money and they don't want to cut down on spending or increase their taxes either.

Anonymous said...

They will print more money in a different name other than QE3. But will not raise rates for many many years. USD is reserve currency for at least another 10-15 years and they will take advatage of it. They will get away with everything and would still have a lot of investors.

==> said...

They will print more money in a different name other than QE3. But will not raise rates for many many years.

==> http://www.money-rates.com/fed.htm

Money Rates Interest Rate Forecast 2011-2012

The federal funds rate is the benchmark overnight lending rate targeted by the Federal Reserve. Fed officials set a target range for the federal funds rate with a primary goal of maintaining strong economic growth, yet keeping inflation within the unofficial target range of 1 percent to 2 percent. The Fed has maintained an ultra-low interest rate policy that looks likely to be in place until 2012. Higher inflation or lower unemployment are the two major wild cards that could cause the Fed to hike rates sooner. The current Money Rates forecast for the federal funds rate in 2011 and 2012 is listed below:



June 2011: 0% - 0.25%

August 2011: 0% - 0.25%

October 2011: 0% - 0.25%

December 2011: 0% - 0.25%

February 2012: 0.25% - 0.50%

April 2012: 0.75%

June 2012: 1.00%

August 2012: 1.25%

October 2012: 1.25%

December 2012: 1.50%

Anonymous said...

The above is only if the economy picks up steam, there is job growth and country is out of RE recession. None of these is happening and Fed will not raise rates as economy will not pick up. Now they can doctor the numbers and show higher employment rates as next year is election year, but Fed will still keep rates low. Commerce dept. even doctors the CPI/Inflation figures to show inflation as very low so that they don't have to raise rates.

Anonymous said...

Moreover, if there is crisis in Canada, Australia or China in the second half of 2011, all the world economies will lower rates again like India will lower it straight by 5%. Yes, 5% like it did in 2008. Rates will not go up in US unless the RE market is corrected which will take eaily 4-5 years more due to massive inventory.

Btw, India is also putting a lot of money for NPAs and if there is some crisis in later part of 2011, India will not be able to recover from it for the next 10 years. It is massively overbuilt and RE prices are that of year 2025.

Anonymous said...

Read this article:
http://www.fundweb.co.uk/fund-strategy/issues/4th-july-2011/will-emerging-nations-repeat-developed-world%E2%80%99s-slump?/1033888.article

Will emerging nations repeat developed world’s slump?

Anonymous said...

And why would anyone trust Fed forecast rates. They never believed in RE bubble till the very end in 2007. All nonsense was happening in front of them and they still ignored.

If they couldn't predict RE bubble in US with the world's best economists in their team, all the talk about forecasting is useless.

polt said...

As per this, we seem to be doing ok. But I see a lot of my colleagues with similar debt servicing burdens of more than 50% of income.
http://www.ft.com/intl/cms/s/0/3186742e-a24e-11e0-bb06-00144feabdc0.html#axzz1RCYk3Sr4

Skeptics Ghost said...

Great conversation guys!
Remember that the Fed and US treasury is 100% controlled by the Investment banks, and they dictate the policies (most of it).
The bankers have sold their debt back to sucker investors (which is basically bought by all the money anyone ever saves - Provident funds/401k, FDs, MFs, IRAs, ETFs, QIPs, SIPs, etc).

So any default on debt will cause another run on the banks, and will trigger insolvency of not only banks but also other investment agencies and insurance companies - which means another bailout.

This fools gold of making money from thin air by long only derivatives and selling debt as Credit Default Swaps (and side betting on someone else's debt) that caused the 2008 crash is still going on - Goldman Sachs, Nomura, Credit Suisse, all the big I-banks have basically messed this up using their quant - algorithmic trading and bonuses for risk (sometimes I think that the computers have taken over the planet ;) )

The Fed cannot increase rates now as the US economy is stuck in limbo -
This means only one thing - these banksters will continue the debt dance borrowing money from fed at 0% and pumping it into any place that would yield profit and by this US is exporting inflation abroad.- plain and simple

Central banks world wide are also concerned about US exporting inflation and the looming possibility of deflation and recession if US stops spending and demand worldwide grinds to halt.

Prices won't go down as long as these investment banks have the grip on worlds money supply (they do by owning the fed)
Any run on the bank will need a bailout.

I will again stick to my word - only a war will change this - example Nuclear threat to South Korea by North or Iran attacking Israel or some completely unprecedented event like 9/11.

Happy 4th of July to fellow Amreekis
People without kids (i.e. liability) and decent salary are probably the happiest people on the planet right now and I am glad to be one of them...

samix said...

==> said...

All hola and hoopla is coming to an end. Just wait for consequences for end of QE. It will take couple of months.


There will be QE3 but not by this name

1) Bond purchases by the FED are still on, is this not QE ?

2) Congress will soon raise the debt ceiling, then FED will buy it's own debt abnd print loads of dollars

raised debt ceiling - current debt ceiling = QE3

Anonymous said...

@above. I mentioned as one of the Anons that QE3 would be there with a different name and right now Fed is buying back 300billion worth of their stuff.

Anyway, prices are falling in these 7 cities in India as per a news report:

The cities which have shown significant correction (drop in property prices) during January to March 2011 are Bengaluru (-17.6 per cent), Kochi (-14.92 per cent), Faridabad (-6.37 per cent), Hyderabad (-4.6 per cent), Surat (-3.76 per cent), Bhopal (-3.55 per cent) and Jaipur (-2.63 per cent).

In Kolkata, prices dipped marginally by 0.77 per cent. Among others, Ahmedabad showed an increase of 0.4 per cent, Chennai 1.66 per cent, Mumbai 1.39 per cent. Patna showed no change.

Anonymous said...

I think as soon as the slowdown hits India, there will be many job losses. In fact slowdown has already started and it is just a matter of time that it gets ugly.

Especially the middle management folks would be easy target. I wonder what would happen to people who have started to spend like they really deserve these salaries which can be wiped out overnight. And all those loans people have taken for their cars and flats?

With RE decline I can predict at least 20% workforce would be laid off. Most people in construction, realty, banking, steel, cement and loan industry etc.

Really tough times ahead for India and many other countries still riding the bubble. It would be a misery for 8-10 years.

polt said...

For the last 3 years or so, we seemed to be happy about the fact that unlike china/japan our economy is still largely domestic demand driven and not very dependent on exports. (For all the hype about IT, it brings in about $50B , i.e. 1/20th of a $1 trillion Indian economy).

This helped us to be largely insulated from slowdowns abroad.

But now if we have a domestic slowdown, then the reverse effect kicks in. We will be hit more because growth abroad will not help much. Besides, signs of growth abroad are largely absent anyway.

==> said...

There will be QE3 but not by this name

1) Bond purchases by the FED are still on, is this not QE ?


==> How long can this continue? As I said earlier... more the QE - bigger the pain and will get you bigger bang for your saved buck.


2) Congress will soon raise the debt ceiling, then FED will buy it's own debt abnd print loads of dollars

==> Ofcourse they will raise the debt ceiling, they have no choice. All the political drama will come to an end on Aug 2nd. As always filmi style - we all know the climax and yet keep ourselves glued to the set - may be that gives thrills to many.

raised debt ceiling - current debt ceiling = QE3
==> If this continues, I am pretty sure, USuying devalued exporting their inflation to other countries will feel richer... did I say richer... RE in India will go up, RBI has to keep buying dollars to keep Indian export engine running.

Now question is how long? Do you think worldwide people will be really feeling richer?

==> said...

Flats to cost more if Real Estate Regulatory Authority (RERA) policy is passed? Will political and builder lobby allow this to be passed?

Government’s orders: Pay only for carpet area, not super built-up

http://economictimes.indiatimes.com/markets/real-estate/news/governments-orders-pay-only-for-carpet-area-not-super-built-up/articleshow/9108782.cms

Mumbaikar said...

@=>
That makes India different than rest of the world. When prices start falling law makers help builder lobby to bump the prices.
This rule was first passed by Vilas Rao Deshmukh in 2004-2005, as soon as this rule is passed builders started charging at higher rate on built up area then on superbuilt up area slowly. It will be no different this time and guess end consumer will not even bother to take builder to court as his doesn't have time and resources to fight usually neck breaking cases.
Why would suddenly Govt. is so concern about the consumer? It is eye wash to safe guard their own interest and screw consumer indirectly.
Since court has asked not to charge for parking and open spaces, builders are charging consumer indirectly on form of black money or under other expenses.
History repeats and this is classic example of it.,,
"sare long be iman, phir bhee mera bharat mahan"
WTF

samix said...

@ said, marc faber describes it the best..

"nations will print money, go bust and eventually go to war"

we are currently between the print money and go bust stage it seems, and war almost looms on the horizon.

samix said...

http://biggovernment.com/amellon/2010/05/23/faber-nations-will-print-money-go-bust-go-to-war-we-are-doomed/

shailesh said...

New Call Telecom Mumbai call centre moves to Burnley

"In contrast, in India jobs are plentiful and we suffer a lot from attrition.

"A similar call centre down the road may offer a more lucrative salary and pull staff away and we need to keep going out there for retraining."
'Pleasant' accent

He added that over the last year he had seen a growing trend in India for prices to increase in real estate, salaries and accommodation.

The price of the Burnley premises, which already have the necessary technology, contributed to the firm's decision to move.

==> said...

@Shailesh:

Can't be better times for USA and UK to get their head straight out of offshoring nonsense. Today India is far expensive on RE than compared to their home ground.

Western work culture and ethics hold more value and are better than Indian work culture.

USA / UK should open immigration at these times, they will get so many talented people with lesser rate. Many Indians cannot afford a decent living place even with decent pay. This will boost economy in real time as compared to stimulating economy with debt.

shailesh said...

Mumbai sees early signs of price softening

Mr Arun Kejriwal, Founder, Kris Research, said a correction of 30 per cent was round the corner. The current stalemate was more due to buyers looking for a correction and holding back on purchase and developers holding on to prices fearing that buyers would go for bottom-fishing if rates were lowered.

Based on interactions with developers, he said none were prepared for any launches in the festive season which is very important for them, stating that they neither had the desire nor the money to advertise. The bottom line is people are not willing to pay quoted prices anymore.

Mr Kejriwal said one of Mumbai's leading developer was scheduled to make Rs 12,000 crore repayment to his bank by June 30, which was unlikely given the sluggish sales. He said there were many like him holding on for a turnaround. From the ultra-high-end apartments to the mid-segment in Mumbai, there were surplus stocks.

Liases Foras has it that the readily available and pipeline inventory in Mumbai is over 1.82 lakh units of which a little over 3,000 apartments were sold in May.

shailesh said...

Four burgeoning suburban slums dwarf Dharavi

MUMBAI: Dharavi, spread over 557 acres and housing nearly three lakh people, is no longer Asia's largest slum. Mumbai has at least four larger contenders for the dubious distinction, some of them three times the size of Dharavi.

The erstwhile smaller slums in the suburbs have metamorphosed into contiguous, large slums. The Kurla-Ghatkopar belt, the Mankhurd-Govandi belt, the Yogi and Yeoor hill slopes stretching from Bhandup to Mulund flanking the Sanjay Gandhi National Park (SGNP) on the east and Dindoshi on the western flank of the National Park have all eclipsed Dharavi. While the profile of the suburban slum sprawls is still to be established, the Mankhurd-Govandi slums that have sprung up at the base of the Deonar dumping ground are known as a "dumping ground" for the city's poor. It has the lowest human development index in the city and is constantly in the news for malnutrition deaths. Moreover, following earlier trends, the slums have come up on hill slopes and mud flats.

Das, who super-imposed Google maps on the 1991 development plan of Mumbai prepared by the BMC, said it was a misconception that all the slums were on land reserved for open spaces. "Nearly 55% of the slums are on land reserved for housing. Only 17% are on land reserved for open spaces and 10% on land designated as natural reserves,'' he said.

==> said...

I feel builders, investors and sellers should keep jacking up RE rates at exponential space. No sale - but keep jacking up rates. Let me add more, let them jack up rents too. To add even more... let suckers buy and/or rent these high prices.

More the merrier. Humpty Dumpty sat on the wall... high wall... very high wall... very very high wall... AND had a deadly fall.

Sometimes system has to crash itself to reboot the system.

shailesh said...

Indian property market hits a brick wall

The average price of a flat in Mumbai rose from 7.5 million rupees (Dh619,516) in October 2006 to 21.8 million rupees this March. At the current price level and sluggish pace of sales, Liases Foras estimates that clearing the backlog of unsold inventory will take about 35 months.

The signs of debacle in this once-prosperous industry are everywhere: rows and rows of empty apartments, unmanned cranes and quiet machines at stalled construction sites.

For property developers, losses are mounting and debts are piling up - outstanding bank loans to property companies shot up by 33 per cent in the past two years to more than 1 trillion rupees, according to the global financial services group Credit Suisse.

PropEquity Research, a property data and analytics company based in New Delhi, says that the delivery of 480,000 of the 930,000 residential units already sold but currently under construction could be delayed by up to 18 months because of a shortage of funds. Construction delays are rapidly eroding investor confidence, analysts say.

==> said...

PropEquity Research, a property data and analytics company based in New Delhi, says that the delivery of 480,000 of the 930,000 residential units already sold but currently under construction could be delayed by up to 18 months because of a shortage of funds.

==> most of these are investors (individual people and companies) buying in bulk before construction starts and many other are heavily debted buyers. So... real numbers are skewed.

Points to ponder:
1. 480,000 units sold. let's say each is sold at average 1 crore (too less?) that comes to 480,000 crores (=USD 106 Billion @45 exchange rate).
For 930,000 units = 930,000 crores (=USD 206 billion)

Now consider appreciation people talk about 30% per year that has been happening taking average of past 5 years. So next 4 years the price of 930,000 units will be more than 20 trillion USD!!!! that is more than America - the biggest and greatest economy !!!

Where does this kinds of money come from and where will this come from in future?

Anonymous said...

@above:
It will come from thin air the way it has been coming till now. But for how long before it all explodes and people get to the streets.

==> said...

It will come from thin air the way it has been coming till now. But for how long before it all explodes and people get to the streets.

==> Once USD declines, everything will fall inline to the streets and in the head. People will then realize that they are paying real money in return for the money made from thin air.

Anonymous said...

@Said:
You are again talking rubbish. USD may depreciate in the short term like a year or two, but it will eventually come back. Do not forget all other countries are still doing the same what US did and are also sitting on massive RE bubbles. Who will bail out India? Or China? Or Aussie or Cananda?

US is coming out okay out of the crisis and once the crisis hits Asian countries people like you will go in hibernation for 10 years.

skeptic's ghost said...

Things to keep in mind -

You can print money but cannot print gold/commodities/goods/services

Like money, you can exchange gold to buy oil, gas, coal, Uranium (if you cannot drill/mine more) or food and shelter - but non productive hedge like gold will not help you generate goods/services

US has huge reserves of Petroleum, Coal, Shale, Natural Gas and Uranium - India doesn't (it does have coal, but the Government & Al Gore's alarmists wont let us use it) China also doesn't have enough oil and gas.

US$ is only top notch because of the might of American Military and the incompetency of any other power to surpass it.

In any argument where one guy has a sword and another guy has a gun, the guy with a gun will win.

This equation will only change if China or Russia builds a superweapon that America doesnt have which is never going to happen. Also note that in todays war population doesnt matter as Drones and machines do all the dirty work of killing.

So when US prints money it mortgages its commodities to its creditors who can stake a claim on it only if they have the firepower to whom they are extending credit.

These creditors also include everyone who has saved in India and China - So basically people who are saving/hoarding currency are going to get hoodwinked by the Bankers first and America next

Someone here mentioned about saving in US and buying home in Mumbai - buying a full price is the stupidest thing I have heard when everyone is dealing with debt.
Debt is no longer taboo while there is so much money supply floating around.

Anonymous said...

I put my flat in Andheri for sale for only 2 crores 3 months back. It is time to jack up the price by 25%. Starting next week asking price going to go up by 500K.

If no one buys by December then I will get the opportuity to jack it up by another 25%.

Isn't this great! At this rate asking price would be 4 crore by end of next year and India will shine even brighter.

Anonymous said...

If Dubai which is so short on land is suffering this much, what will happen to Mumbai and other metros of India when the downturn comes??

More property floods Dubai, Abu Dhabi rents drop 9%
Jul 5, 2011 ~ ARABNEWS

DUBAI: Oversupply continues to hurt the UAE’s property market with 18,000 new homes expected to hit Dubai’s market by year end and rents in Abu Dhabi dropping 9 percent in the second quarter, reports showed.

Some 2,000 homes were completed in Dubai in the second quarter and another 18,000 will be ready for occupancy by the fourth quarter, a report from property consultancy Jones Lang LaSalle said, adding that total current residential stock will rise to around 322,000 homes.

Office supply in Dubai is expected to grow by more than 30 percent over the next three years, it said.

Dubai house prices, already nearly 60 percent off their peak, are set to drop another 10 percent before stabilizing, Reuters poll showed.

Anonymous said...

I just finished reading a book about international immigration called Moving Millions: How Coyote Capitalism Fuels Global Immigration.

It included an interview with an Indian guest worker in Dubai. His characterization of the locals was not flattering.

They let the guest workers do all of the hard, dirty work while, as this man put it, they just ate, prayed, and fornicated. (He used a different f-word.)

Anonymous said...

Fun statistics about Canadian Housing prices:

http://www.rbc.com/economics/market/pdf/house.pdf

A house or bungalow in Vancouver requires around 80% of pre-tax household income.

The 80% is based on:
The measures are based on a 25% down payment, a
25-year mortgage loan at a five-year fixed rate and
are estimated on a quarterly basis for each province
and for Montreal, Toronto, Ottawa, Calgary, Edmonton
and Vancouver-metropolitan areas.

25% down still requires 80% of your pre-tax income. No bubble? YEAH RIGHT!

polt said...

I will go out on a limb here and make a prediction. People may call this impossible, but I stand by it.


Take prices when this boom started (say 2001/2002). Add inflation plus maybe 0.5% or 1% on an annual basis to it. Thats where the prices will eventually revert to. It might not happen this year or in the next 5 years, but it will some day (more likely sooner than later).

Time and again history has shown this to happen. Time and again people get caught up in the mania and say this time is different.

Pawan said...

@Polt
Take prices when this boom started (say 2001/2002). Add inflation plus maybe 0.5% or 1% on an annual basis to it. Thats where the prices will eventually revert to.

Agreed. But how do you measure inflation? Value Indian RE against Gold, Oil, Rubber, all hard commodities, and you will see that RE is just keeping pace with everything else.
What is fueling commodities boom is another Q and when will it end? Who knows.
Reversion to mean will happen in RE too but if it came in 20-25 years when I am near retirement, will it be any use to me?

polt said...

@Pawan,
The fact is very useful to you. Its telling you what countless people have learnt the hard way in other countries before us throughout history.

1. Do not treat real estate as a passport to wealth. It is at best a store of value. That too is little shaky if you get the timing wrong. Ask the Japs who bought in between 1986 and 1990 and homes there are nowhere hear their old values for almost 20 years now.
Unlike equity (where you can have a SIP), real estate is a single concentrated bet at one point in time. That's what makes timing important. But no one can time the market :)

2. By all means, buy the house that you can afford. A house is a place to protect, to grow a family, build ties with the community around you, to live a life. Treat it like that. It is not some magical wealth multiplier. Never has, never will be. The whole of India was caught up in this mania over the last few years, and now all of us will suffer the hangover of the party.
Banks too, I hear have been gaming RBI regulations and lending to NBFCs which in turn lend to real estate. These NBFC loans dont show up as real estate loans on the bank balance sheets.
Looks like our bankers were no less greedy than the pigs in the US banks. If finance industry gets hit, expect the rest of the economy to follow.

3. More importantly, its telling you that if you want to become wealthy, real estate will not do that for you. It will keep pace with inflation (whatever it may be), leaving you with zero real gains.

Pawan said...

@Polt
if you want to become wealthy, real estate will not do that for you. It will keep pace with inflation (whatever it may be), leaving you with zero real gain.

Totally agree. But I don't want to buy a home to get rich. I want it to live in it :)

To get rich, I will do something else!

polt said...

@pavan,
This is in response to your previous question about inflation. We can use the equity markets as a reference.

Historically, across the world, equities have returned around 5% above inflation in the long term. Indian equities since 1991 have returned about 12% nominally. Which seems to be roughly inline with what history predicts (ie. 5% real + 7 or 8% indian inflation).

So I guess you can use the same for housing. No reason for housing to to track higher inflation when equities (which also track consumption and inflation ) are indicating an inflation of 8%.

This might come as a shocker for those who have bought homes and seen 20%+ annual appreciation over the last few years, but truth is often bitter.

DingDing said...

@polt

Excellent posts

Anonymous said...

http://indiatoday.intoday.in/site/story/sc-cancels-noida-extension-land-buy/1/143905.html


HOME DREAMS SHATTERED AS SC cancels Noida Extension land deals

polt said...

I am collecting some of my longer posts here http://south-sea-ideas.blogspot.com/.

I enjoy this blog and have no intention of cannibalizing viewers. Just thought that some of my longer posts merited a separate blog.

Will continue to post here. Enjoy the tussle between bulls and bears, though I have not seen too many bulls here recently.

DingDing said...

All asset classes are basically nothing but store of one's wealth, it is the outcome of the speculation in the assets that leads to one feeling wealthy or poor.

Best way to beat inflation is as far i'm concerned is Productivity gains /enhancements, All the better if the productivity enhancement is an multiplier.

But this would mean constant urge and desire to push oneself.

polt said...

Is australia the next housing domino to fall ?
http://www.bloomberg.com/news/2011-06-30/australia-home-price-drop-pits-local-bulls-versus-foreign-bears.html

==> said...

Why does every Indian politician behave like Devta or economist. They are simply governers but they want to predict every thing. Looks like they are more of entertainers - saying words what public wants to hear. Also, if food inflation everything? Why doesn't he talk about other necessities of life like RE.

Here is Mukherjee:

http://www.samachar.com/Food-inflation-has-come-down-says-Mukherjee-lhhvKeigcia.html

polt said...

Regarding the very first post -
" Rustomjee in Thane , 91 lacs for 2 BHK with 1050 sq ft approx,2.5 bhk for 1.05 crores" -
How much rent (after maintenance) can one expect there?