Wednesday, June 22, 2011

How your dreams of a new home go bust

Article Link

Despite 90,000 flats lying unsold in and around Mumbai, MiD DAY finds that Rs 50 lakh will not get you a home even in places like Kandivli, Ghatkopar & Deonar.

Armed with a budget of Rs 50 lakh, MiD DAY reporters went to areas like Kandivli, Malad, Ghatkopar and other suburbs distant from the island city, where one would expect to find a flat in this range, but came back empty handed in every case but one. The only flat we could find within our budget was a 1-BHK for Rs 46 lakh in the poorly connected Kurar Village in Malad, which would be ready for us to take possession of only in 2013.

You have to wonder, why Government is sleeping at Wheel. Indian policies were admired when RE and finance bubble burst in US. Indian media and government were all praise saying how smart they were compared to US. Now, if the prices below do not yell, BUBBLE...., then what does? What happens when this bubble bursts? Do Indian Banks have no exposure to these absurd prices? I think we are in for a big surprise when this bubble crashes....

RNA Royal Park, Charkop (Kandivli)
Price: Rs 1.64 cr

Nand Dham, MG Cross Road (Kandivli)
Price: Rs 70 lakh

Orchard Residency, LBS Marg (Ghatkopar West)
Price: Rs 1.25 crore*

LBS Marg (Ghatkopar West)
Price: Rs 2 crore

Vrindavan Terrace, Sion-Trombay Road (Deonar)
Price: Rs 8 crore

55 comments:

Anonymous said...

India will have its own financial crisis soon. The country has ZERO innovation. People have been selling RE to each other with higher valuations and banks are fool enough to make these loans.

Wall Street is going to layoff another 10% of their cheats in the next few months. I will not be surprised to see a few Indian Banks close down due to exposure to Indian RE and even exposure to loans in Europe.

Very tough time ahead for India. The next 6-8 years would be bad for the country's economy.

It was Too Good to be True. And the party is getting over.

==> said...

First of all we have to understand that all this RE hikes and transaction are for 10% population only, these 10% make very decent earnings (15 lakhs minimum per annum). Also many already have paid off their debt and are no pressure to sell, even if their flat lies vacant for another 10 years.

Two things need to happen simultaneously: 1> Decline in good paying IT jobs 2> Take away earning potential of bottom layer. Then this whole RE game comes to an end.

What are chances of this happening? Many are already rejoicing for IT hikes this year (in double digits).

Anonymous said...

@ ==>

You are absolutely right.

Banks are the last one to be affected by real estate crash. All of you know why.

skeptic's ghost said...

The only reason for businesses to stay in Mumbai is 24x7 electricity and International Airport.
IF the Navi Mumbai and Pune Airports are completed and If they privatize power generation and ensure 24x7 electricity, there will be no reason for anyone to live in Mumbai since Navi Mumbai and Pune have almost everything Mumbai can offer and in some cases like Education and IT Jobs - actually better.

The same thing has happened in America - Businesses have fled New York and California due to high cost of living So they are moving to Texas, Southern states, AZ, etc.

==> said...

Banks are the last one to be affected by real estate crash. All of you know why.

==> ever wonder where does Bank get so much money to lend? They lend imaginary money they really never had, but they expect real money in return for their lending! Bank lending can vary from country to country regulation, they have from 1:3 to 1:30 deposit to lending ratio. So now this multiplies multiple times with real money returning (EMI) to Bankers.

Anonymous said...

I pity the mid-day guy..He doesnt know Mumbai well.with 50 lacs you cant even think of ghatkopar and kandivali...Ghatkopar east nothing is less than 18000 rs. a sq ft..kandivali is 12k a sq ft..you got to go to kurla west and the likes....u will still get your worth...

==> said...

Mid-day guy should take picture of building that is worth 100+ crores worth buildings.

I look to see the color peeling of the buildings. Water lekages, colorful swimming pools. Clothes and dirty laundry on display on their so called balconies.

Anonymous said...

If real estate prices crash (in Rupees), the GOI will simply repeat what they did in 2008-2009, they will print money until nominal real estate prices are stabilized. The dollar is a very weak currency that is constantly declining against all other international currencies over the past decade, yet the exchange rate of the Rupee has not budged against the dollar. This tells me that the Rupee is structurally a very weak currency that is capable of being pumped and primed to hide any deflationary effects. As late as 2009-10 when you needed to mortgage your children to buy a bag of onions, our omniscient and omnipotent Prime Minister was warning of the bogeyman of "deflation".
If real estate prices fall (again, in nominal terms), all home-owners have to do is to wait for the RBI/GOI to rescue them with another round of inflation.
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 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. The people who bought their homes for lakhs 20 years ago are laughing all the way to the bank because they are paying back their Rupee mortgages now with MASSIVELY depreciated money.
NEVER UNDERESTIMATE THE POWER OF INFLATION TO BENEFIT THE HIGHLY-LEVERAGED AND THE RECKLESS WHILE SIMULTANEOUSLY PUNISHING SAVERS AND THE PRUDENT.
My father bought a motor vehicle in 1975 which he sold in 2000 for a HIGHER price (in Rupee terms) than what he paid for it in 1975. There are not many countries in the world where even normally depreciating assets become more "valuable" over time.
This is India. This is the Indian Rupee. In this environment, asset prices have only one direction: UP. Prudent and canny Indians will wait out any slowdown by waiting for the ameliorating effects of inflation to catch up.
Print, Print, Print...

Anonymous said...

If real estate prices crash (in Rupees), the GOI will simply repeat what they did in 2008-2009, they will print money until nominal real estate prices are stabilized. The dollar is a very weak currency that is constantly declining against all other international currencies over the past decade, yet the exchange rate of the Rupee has not budged against the dollar. This tells me that the Rupee is structurally a very weak currency that is capable of being pumped and primed to hide any deflationary effects. As late as 2009-10 when you needed to mortgage your children to buy a bag of onions, our omniscient and omnipotent Prime Minister was warning of the bogeyman of "deflation".

If real estate prices fall (again, in nominal terms), all home-owners have to do is to wait for the RBI/GOI to rescue them with another round of inflation.
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 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. The people who bought their homes for lakhs 20 years ago are laughing all the way to the bank because they are paying back their Rupee mortgages now with MASSIVELY depreciated money.

NEVER UNDERESTIMATE THE POWER OF INFLATION TO BENEFIT THE HIGHLY-LEVERAGED AND THE RECKLESS WHILE SIMULTANEOUSLY PUNISHING SAVERS AND THE PRUDENT.

My father bought a motor vehicle in 1975 which he sold in 2000 for a HIGHER price (in Rupee terms) than what he paid for it in 1975. There are not many countries in the world where even normally depreciating assets become more "valuable" over time.

This is India. This is the Indian Rupee. In this environment, asset prices have only one direction: UP. Prudent and canny Indians will wait out any slowdown by waiting for the ameliorating effects of inflation to catch up.

Print, Print, Print...

Anonymous said...

If real estate prices crash (in Rupees), the GOI will simply repeat what they did in 2008-2009, they will print money until nominal real estate prices are stabilized. The dollar is a very weak currency that is constantly declining against all other international currencies over the past decade, yet the exchange rate of the Rupee has not budged against the dollar. This tells me that the Rupee is structurally a very weak currency that is capable of being pumped and primed to hide any deflationary effects. As late as 2009-10 when you needed to mortgage your children to buy a bag of onions, our omniscient and omnipotent Prime Minister was warning of the bogeyman of "deflation".

If real estate prices fall (again, in nominal terms), all home-owners have to do is to wait for the RBI/GOI to rescue them with another round of inflation.

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 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. The people who bought their homes for lakhs 20 years ago are laughing all the way to the bank because they are paying back their Rupee mortgages now with MASSIVELY depreciated money.

NEVER UNDERESTIMATE THE POWER OF INFLATION TO BENEFIT THE HIGHLY-LEVERAGED AND THE RECKLESS WHILE SIMULTANEOUSLY PUNISHING SAVERS AND THE PRUDENT.

My father bought a motor vehicle in 1975 which he sold in 2000 for a HIGHER price (in Rupee terms) than what he paid for it in 1975. There are not many countries in the world where even normally depreciating assets become more "valuable" over time.

This is India. This is the Indian Rupee. In this environment, asset prices have only one direction: UP. Prudent and canny Indians will wait out any slowdown by waiting for the ameliorating effects of inflation to catch up.

Print, Print, Print...

Anonymous said...

Most buildings in Mumbai look dilapidated just after monsoon due to acid rain accompanied by atmospheric pollution. Most constructions are sub standard and plaster start peeling off due to rain, traffic vibration and so many other factors. Mumbaikars do not mind these conditions, To add to the beauty of building surroundings, they chew paan and spit on walls, elevators to create modern art. As nature lovers, they grow a garden in their balcony, water the plants without fail thus creating a trickle of muddy stream that decorate the walls. The obese and lazy, after a brisk walk in the compound urinate behind the shrubs when no ine is watching

Now hanging out under garments and clothes is a necessity . Maids wash the clothes and dry in the balcony. No one can survive without a maid in mumbai.

Whatever I mentioned is true in multi crore apartments or budget class buildings.

i have been living in Mumbai for the last 28 years and the only buildings that I've come across that are clean are the ones that have majority Parsi or Christian owners. Then we can not consider them as Indians as they follow foreign customs.

Anonymous said...

anon 1.47

You are a faggot. "Parsi's and Christians allow foreign customs so they cannot be considered Indians".

What a moron you are - who in all your life was just a copy cat..

When was the last time you did not follow any foreign custom, like using the internet, telephone, computer, social network, drinking beer, drinking whiskey, smoking pot, travelling to foreign lands, dating a gir, eating pizza and burgers, wearing pants..etc, etc..

Every f*cking thing that you do on a day in day out basis, other than worshipping to your ***** idol is a foreign custom. If you dont like it get the f*ck back into your cave..

Anonymous said...

Even Colgate and Lux are foreign.

Anonymous said...

=>Said:

Even if houses are paid off, it doesn't mean the prices cannot drop. Once they start dropping, it is a freefall. Even people holding their assets free and clear would start selling to get whatever they can for their assets.

Youir logic has always been illogical. As regards to IT salaries, look at the downgrades to all IT companies. The salaries would correc there as well towrds downside as they cannot go high forever. Either the jobs will leave India or outsourcing will become lo from West as salaries in the west have dropped substantially for IT folks.

Moreover, there is very less spending in the west now. India always catches up late.

Why don't you buy more RE if you are so optimistic instead if giving your ill thought 2 cents to people here.

People who are taking your advise mistakingly will curse the hell out of you when RE drops as most people do not have stolen money unlike you. Most Indians work hard for their money and are not a paid RE pimp like you.

Anonymous said...

=>Said:
If everything is so great in India, why is the stock market falling everyday. Today also it will fall by 150-200 points.

Why are RE stocks trading for pennies now if RE is so good?

You are a joker. Read Econ101.

Anonymous said...

=> Said:

Are you saying only IT people are buying RE in India and if their salaries go down, then only RE will correct.

In my hood in India, every Tom, Dick and Harry bought 3, 4 or 5 flats and are sitting on them. They can't even speak properly and are multi millionaires in dollar terms.

It salaries went up from 10K to 3-4lacs from 2000 to 2006, but there was no bubble then. How about considering the nonsense created by GOI by printing massive money and borrowing massively from the world that India is just next to Greece and can default anytime.

Skeptics Ghost said...

Whats the rent for these multi crore apartments in Mumbai?
I thought ideal rent should be 1/300 of the price

Anonymous said...

@above:
Please do not talk about logic in corrupt India inhabited by thieves like =>Said.

Rent are this way:
For a 1Crore flat: 15K-18K p/month.
For 1.5 crore: 20-22K p/month.
For 2.0 crore: 25K p/month.

India is full of fools and speculators who are the biggest fools. They will soon be running away with their paper money.

Anonymous said...

U.S. Banks May Accelerate Job Cuts After Firings Jump 21%, Challenger Says (Bloomberg)

U.S. banks may accelerate job cuts after reducing 11,400 positions in the first five months of the year, a 21 percent increase over 2010, because of falling profits and government regulation, according to Challenger, Gray & Christmas Inc.

“Firms are under tremendous pressure,” said John Challenger, chief executive officer of the Chicago-based company that advises companies on workplace reductions. “Shareholders are bailing out of them, and their stock prices are reflecting that these businesses may not be the profit-generating entities that they once were.”

Job cuts at financial firms are climbing after falling to a 14-year low of about 24,000 announced last year, according to data compiled by Challenger. This year’s reduction “might very well” be more than double 2010’s number, CEO Challenger said today in a phone interview.

Net revenue at the six biggest U.S. banks — Bank of America Corp. JPMorgan Chase & Co. Citigroup Inc. Wells Fargo & Co. Goldman Sachs Group Inc. and Morgan Stanley fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg. The KBW Bank Index which tracks 23 of the biggest U.S. lenders, is down 8.8 percent so far this year.

Anonymous said...

A giant Indian outsourcing company with thousands of employees in the United States is facing an expanding federal investigation prompted by claims from an American whistle-blower that it misused short-term visitors’ visas to bring in low-cost workers from India.

http://www.nytimes.com/2011/06/22/us/22infosys.html?_r=2&ref=business

GSM said...

==> ever wonder where does Bank get so much money to lend? They lend imaginary money they really never had, but they expect real money in return for their lending! Bank lending can vary from country to country regulation, they have from 1:3 to 1:30 deposit to lending ratio. So now this multiplies multiple times with real money returning (EMI) to Bankers.

Yes this is debt based monetary system we are living in. You are forgetting couple of important points. The system increases money supply so there is no deflation with increase in goods and services that is produced and bought with debt so there is a increase in employment and standard of living. An example is Computers and cell phones whose prices are falling even with inflation when more when more people are able to afford them. When the same debt is used to speculate it is bound to crash. When speculation ends and debt defult starts these ratios shrink rapidly and banks will not have any ratio left to lend and become insolvent. As you note above to replace 1:30 ratio of debt money supply with priting money is diffult unless causing runway or hyperinflation in other goods.

However India is different and this time it is differnt right ;-)

polt said...

I have said before that one of the most powerful forces in asset prices is mean reversion. I still stand by it. Asset price/earnings will revert to mean.

Long term P/E for stocks is around 15. Now with sensex earnings expected around Rs 1150-1200, the index should be around 1200*15 = 18000 or lesser. So the stock market seems be at fair value or at least heading there.

For houses P/E = price/(annual rent-expenses). Long term average is between 15-20 for houses (across developed/fast-developing countries). Here in Bangalore, the current ratio seems to be around 35+. So something has to give. Note that its the ratio reverts to mean. So it could mean that prices (numerator) will be flat, but rents (denominator) could go up.

The article suggests that this might happen. Flats are so expensive that more people will rent, pushing up rents till P/E becomes attractive again.

I am in bear category though and feel that rising interest rates will push prices down.

Pawan said...

@Polt,
Actually both the things will happen. If rents go up 10% each year for the next 3 years and prices stay flat then multiples go down from 35+ to around 26-27. If prices also meanwhile fall 20%, then multiples will be below 20.
However, things in a develpoing economy with few vibrant packets of growth area, those areas can always command a premium.
Even if prices fall, the fall will be temporary and I don't see the multiples going below 30 for the next 3-5 years unless some catastrophe happens.
People keep referring to the 2008 crash but at that time Sensex too went down to 8000. And you yourself say Sensex is currently fairly valued at 18000.

polt said...

Pawan,
Fair point.

But with equities, todays hot stocks almost always become tomorrows laggards. The price gets bid up to such a point where valuations are way too high. The same happens with houses. So todays premium apartments may give flat returns. (not necessarily negative though). Add a low rental yield and you pretty much have a sub-par investment.

In 2008, I kept buying diversifed index funds in a SIP till around 11500 and then lost my nerve and stopped buying. Thankfully I held on to the units I had bought.

At 8000, the sensex was trading at an unbelievable multiples of around 9. A buying opportunity of a lifetime :(

Almost all rich investors of the world made a lot of their money by investing when everyone was running away from the market. I guess I am not going to be one of them :)

==> said...

Even if houses are paid off, it doesn't mean the prices cannot drop.
==> I agree.

Once they start dropping, it is a freefall. Even people holding their assets free and clear would start selling to get whatever they can for their assets.
==> Really? understand Indian mentality. Most would starve rather than sell Gold or RE.


Youir logic has always been illogical. As regards to IT salaries, look at the downgrades to all IT companies. The salaries would correc there as well towrds downside as they cannot go high forever. Either the jobs will leave India or outsourcing will become lo from West as salaries in the west have dropped substantially for IT folks.
==> Offshoring is growing at exponential pace. Not only IT or ITES, Financial firms are great pay masters. In nutshell I recorrect cross of IT and replace with all offshoring jobs.

Moreover, there is very less spending in the west now. India always catches up late.
==> West is expecting pushing East to spend more. East has more consuming class young people esp. India and China.

Why don't you buy more RE if you are so optimistic instead if giving your ill thought 2 cents to people here.
==> Well there you are again - Farting. I never said buy RE or stocks.

People who are taking your advise mistakingly will curse the hell out of you when RE drops as most people do not have stolen money unlike you. Most Indians work hard for their money and are not a paid RE pimp like you.
==> Haha! you again farted.

==> said...

Please do not talk about logic in corrupt India inhabited by thieves like =>Said.

==> uhh... that's what I have been saying. there is no use of logic in corrupt India. Did I say India was clean and sparkling?

==> said...

Thanks GSM for complete post. Yes, I missed these points you mentioned.

When speculation ends and debt defult starts these ratios shrink rapidly and banks will not have any ratio left to lend and become insolvent. As you note above to replace 1:30 ratio of debt money supply with priting money is diffult unless causing runway or hyperinflation in other goods.

==> said...

A giant Indian outsourcing company with thousands of employees in the United States is facing an expanding federal investigation prompted by claims from an American whistle-blower that it misused short-term visitors’ visas to bring in low-cost workers from India.

http://www.nytimes.com/2011/06/22/us/22infosys.html?_r=2&ref=business


==> Why only Infosys? Almost every IT firm has misused visa. Infact H1 were the most misused, L1 are the favorite one as there is no bar - ideally L1 are company transfers and should not be working for client or it's location, But you see them everywhere.

B1 is short term misuse. It's like you can goto USA for pleasure trip but in reality work for 3 months. What after 3 months? Well, there is rotation/recycling policy.

Anyways, these IT companies have strong immigration lobby and they will get around these easily. Remember while back there was senator who sent questionaire to Infosys, what happened to that one?

Corrupt culture is powerful and is very contagious.

REBear said...

@Said

==> Really? understand Indian mentality. Most would starve rather than sell Gold or RE.

That is not just true for Indians, but almost any citizen of this planet. No body wants to book a loss. By that logic, prices should never correct. But the fact of the matter is prices do correct because some of the people are forced to sell, perhaps because of leverage, unforeseen big expense like medical, marriage, etc. I have seen that happening in the bear period of RE in 1998 with my relatives.

Yesterday there was a news that ICICI's exposure to realty has increased by a whopping 95% yoy, and that worries me as most if my savings are in ICICI. The deposit insurance in Imdia is a meager 1 lakh rupees. You cannot rely on govt of india to bail you out. I am worried what I must do to protect my deposits in such banks. The only solution is opening accounts in multiple banks, but it becomes a headache to manage so many accounts. The only solution is to buy gold on dips. Did anyone thought deeply on this problem ?

==> said...

@REBear:


==> Indians are exception ;-) Let me explain. In western countries many are ready to pay extra for quality products and services. Many Indians are ready to sacrifice quality over cost.

Looking at Indian history, whenever there were financial crisis people start committing suicides. Why? couldn't they sell their gold and homes and other assets they had? I'm not saying that everyone does that, but most have these thoughts.

RE will correct, but only when there is really catastrophic and extreme situations like life and death. I'm sorry - I don't remember who it was - Skeptic Ghost or someone else that had very nice post explaining this.

==> said...

FII pullout hits cash-strapped Runwal

http://www.realestatemumbai.com/NewsDetail.aspx?news=1832

==> said...

Funny nos: Can DLF’s steel & cement cost 2.5 times Oberoi’s?

http://www.firstpost.com/business/funny-nos-can-dlfs-steel-cement-cost-2-5-times-oberois-29509.html

Funny India.. eh!

Anonymous said...

Capitaland is a well reputed builder in Singapore, their execution is smooth and timely. Reckon, they had enuf of dealing with the desi builders! The pullout has been too quick...better to book losses than to continue with day to day painful corruption. Am surprised though they started off with a project in godforsaken place like Ghatkopar!

Anonymous said...

"The deposit insurance in Imdia is a meager 1 lakh rupees. You cannot rely on govt of india to bail you out. I am worried what I must do to protect my deposits in such banks."

If Indian banks go bust because of their loans to developers (i.e. butt-buddies of government), GOI/RBI will bail them out with the printing press so fast it will make your head spin.

God help us from the Government printing presses and permanently high asset prices!

REBear said...

@Anonymous at 10:03 PM

If Indian banks go bust because of their loans to developers (i.e. butt-buddies of government), GOI/RBI will bail them out with the printing press so fast it will make your head spin.

That might not be possible without runaway inflation and huge depreciation in currency. How about this solution by GOI - bail out all depositors with deposits upto 3 lakh ? That covers virtually more than 95% of depositors that comprise the vote bank. What happens in such a case ?

Anonymous said...

"That might not be possible without runaway inflation and huge depreciation in currency. "

When was the last time the GOI worried about "runaway inflation" and "huge depreciation in currency"? As I mentioned in an earlier post, as late as 2009-10, when it cost an arm and a kidney to buy a bag of onions, our beloved PM publicly stated that "deflation" was his biggest worry.


"How about this solution by GOI - bail out all depositors with deposits upto 3 lakh ? "

Are you kidding me? Do you think GOI worries more about depositors or about the Banksters? Which do you think is the more influential interest group? If the GOI was worried about depositors, they wouldn't have molested them as they have done for most of the past quarter-century with negative real interest rates.

Anonymous said...

@==> said...

FII pullout hits cash-strapped Runwal

Today's paperr has published the following

South Mumbai bungalow sold for record Rs 350 crore

http://timesofindia.indiatimes.com/city/mumbai/South-Mumbai-bungalow-sold-for-record-Rs-350-crore/articleshow/8970921.cms

Your views please

polt said...

Another often used metric for home price affordability is the price/income ratio. Generally this is around 2.5 to 3.5 .So for someone earning about 15L/yr a house of about 40 lakhs is fairly doable. If you use your savings, take a loan and borrow some from the Bank of Mom and Dad :), then 45L is a stretch, but probably ok.

But the problem I see among some colleagues of mine is that they have overstretched assuming that 10% salary hikes are here to stay for ever.

Rising interest rates and slow wage growth can provide a rude shock though.

shailesh said...

We should not worry about bubble. These millionaires will hold onto properties forever and not let RE crash....

Now, India has 1.53 lakh millionaires

At the same time, Indian millionaires also showed growing interest in investments like luxury collectibles (luxury cars, boats and jets), as also in sports, the annual survey found.

At the end of 2010, India's HNI population stood at 1,53,000, up more than 20 per cent from 1,26,700 in 2009, when India was ranked 14th.

The HNIs have been identified as those with investible assets of $1 million or more, excluding their primary residence, collectibles, consumables and consumer durables.

Anonymous said...

Shailesh Bhai,

The figure 1,53,000 $millionaires is based on declared assets and income tax paid. What about the non tax payers.
I know a marwari small time business man who has invested (lent ) 100 cr to film industry. I don't think this guy spends 10,000 rs monthly for family expenditure. I'm sure that this guy has a large investment in real estate too.

There is a shop in Kalina that sells plastic buckets as a front and money lending as side business. This guy claims that he has over 50cr in the market. I am not sure what market. I know this guy is a millionaire many times over.

There are thousands of guys like the above mentioned in large cities and they play havoc with the market. Unless the govt takes concrete steps to nab these anti socials, the real estate situation is unlikely to change

==> said...

The figure 1,53,000 $millionaires is based on declared assets and income tax paid. What about the non tax payers.
I know a marwari small time business man who has invested (lent ) 100 cr to film industry. I don't think this guy spends 10,000 rs monthly for family expenditure. I'm sure that this guy has a large investment in real estate too.

There is a shop in Kalina that sells plastic buckets as a front and money lending as side business. This guy claims that he has over 50cr in the market. I am not sure what market. I know this guy is a millionaire many times over.


==> And who says India is poor? All lies... Almost everything in India is masked. White economy masking black economy, Rich show off masking large number of poor, Manipulated healthy accounts masked masking real cheating. India shining masking India struggling.

Anonymous said...

True to the core
But, what can we do

Pawan said...

@Polt
Another often used metric for home price affordability is the price/income ratio. Generally this is around 2.5 to 3.5.

This is right. However, I don't know anyone who bought a first property worth 1 Cr. Most people who do so are -
1) those who bought a 30L flat 5 years back when their earning was 10L, paid it in full and is now worth 60L. These guys are now earning 20L and they sell the first one and buy a bigger one worth 1 Cr since they now need to only borrow 40L.
2) Investors. People who already have one home to live. They go and pick up units in pre-launch. Pay around 50% in 2 years by which time prices have appreciated by 25% on the whole giving them 50% return on their money (since they have only paid 50% by now).

Obviously, its the second group which will be the cause of correction if any. Some of these people can't even afford to pay the full money if it ever came to that. And when they stop paying, builder stops construction of the project. That is the time when you can buy something cheap in a distressed project. However, you never know when and if it will be completed.

shailesh said...

99% Mumbai households can't afford to buy a flat

According to the report, only 1% of the households earn enough income — an average of Rs10,21,825 a year — to buy a home in the city at the prevalent prices.

“A large chunk of the demand is for homes priced in the Rs2,000-4,000 per sq ft bracket costing between Rs25 lakh and Rs40 lakh. At this price, the customer not only wants a good quality home, but also all lifestyle amenities. The challenge for the real estate fraternity is to fulfil the needs of this segment,” said Adi Godrej, chairman of the Godrej Group, who unveiled the report along with Ajay Piramal, chairman of Piramal Group.

The city’s working class is worse off than its counterparts in other metros, vis-a-vis the distance from workplace and the hours of commuting, the report revealed.

shailesh said...

You wonder why big builders cant see writing on the wall and get rid of the inventory... The longer they delay, the bigger the drop will be.

Big realty firms say housing prices will not come down

Despite the stagnation in the realty sector and talks about a necessary price correction doing the rounds, the big city developers don't see a chance of prices coming down. At the CII real estate summit on Friday, Ajay Piramal, chairman, Piramal group, Adi Godrej, chairman, Godrej group, and Niranjan Hiranandani, managing director, Hiranandani group, suggested that prices could go up even further.

"I don't see any correction happening, because the government is not giving any approvals and supply is getting delayed," Mr Piramal said. "No builder wants to lose money and the costs have significantly gone up."

Mr Hiranandani said, "Whether it is real estate or any other industry, the prices go down when surpluses are created. Though demand is rising, no surplus is being created because of a delay in getting government approvals and archaic land laws, which make acquisition a difficult and lengthy process. Add to that the rising prices of items like steel, and we have inflated costs."

Anonymous said...

As per Knight Frank LLP, India’s real estate industry is expected to face a huge distress in the midst of rising borrowing costs and shrinking access to credit. Indian developers have a debt repayment to the tune of Rs 1.8 trillion ($40.8 billion) to state-run banks, private equity funds and other lenders over the next two to three years.
US TO ENTER DOUBLEDIP RECESSION.
SELL RE AVOID BANKRUPTCY.BUY GOLD.

shayna said...

@Shailesh,
The points u raise abt millionaires, most of them are rich from RE. When the bubble bursts this number will evaporate.

The 2nd ref you give to the statement by builders on demand supply equation. The demand has been created on back of a low interest easy liquidity (loan) regime. I am a Aircraft engineer and know how the airline industry in India is facing huge problems that is percolating to the staff wages. AI is on the news everyday, today with the sad story of a employees death over possible delayed wages. Airlines are leading indicators of an economy's movement, from exhuberance in DEC2010 it is now in survival mode.

@Polt,
The RE price ratios you quote with ref to earnings have to be viewed with the fact that in India it is the wages of Father, brother and sister together. Hence the huge increases. The same is prevalent in many countries in EU where they have nucleus families.

Another point that u raise ref the stock exchange has to be viewed in light of the loose oversight and regulation. Reliance has been notorious for playing the BSE for the the last 20yrs, last couple of weeks their loss of grip over the BSE is reflected in true value of their stocks. And in India this has a domino effect on other companies too even if they are inherently sound.

@Anon,
On the question of the IT industry, i was reading abt IBM in India has over 50k employees working from home due to high RE costs. Now this trend will naturally lead to people living in their domiciles i.e T2 T3 cities rather than migrating to T1 cities.

@All,
India has many roads to cover before we can have a robust economy. The boom of last 10yrs has been on the back of money printing in the west. Even godforsaken places in Africa have seen a boom. India does not produce anything that the world is dependent on us for i.e Like china or the USA.
The political parties are out to maul congress, which is drowning under the wt of corruption allegations. The other political parties are far worse than the congress, a Modi or a Nitish can not save this country.

Pray

polt said...

@Shayna,
You are probably right about the joint family income part, though many houses nowadays are couples only and not joint family. I also mentioned that many buyers get interest free loans from parents, hence allowing them to buy a bigger house.
And generally, our banks seem to have been prudent in lending not more than 70-80% of the home value to buyers.
The question is have they been equally prudent when lending to big builders? Or were the top guys bribed (like in LIC housing corp) and then lent imprudently? Time will tell. My guess is we will know in a year or so, when the builders have to pay off or refinance their loans.

==> said...

Adarsh scam: Maps, survey sheets go missing

http://www.thehindu.com/news/states/other-states/article2134136.ece?homepage=true

...what happened to this building, I thought it was going to be demolished.

Anonymous said...

Few years from now on, everyone will forget Adarsh scam. The scamsters are just buying time

What happened to Bofors , Laloo Prasad scam and so many other past scams.

Time is the greatest healer

==> said...

Mumbai plans new beach at par with Goa

http://www.ndtv.com/article/cities/mumbai-plans-new-beach-at-par-with-goa-83143?cp

This is news from Feb 2011, Does anyone know if people have stopped doing pee and poo in renovated Mumbai beaches?

RE prices in Mumbai will be more than heaven on these coastal areas

Skeptics Ghost said...

Another point that no one mentions is India's immense population pressure. With more babies being born every day - the pressure on existing resources is increases - paper money can be printed but water, petrol, food, sewage treatment and electricity cannot.

This unsustainable pressure is leveraged as increased demand even though there is little upward mobility to these millions of babies or their families.

Add to this increased life expectancy means that the number of people needing support only grows.

For Real Estate (and the banks that control RE - note that the banks also control the government) this becomes an excuse to say that there is not enough land and not enough resources to raise prices and leads to debt slavery.

Even if you fully own your house - you are enslaved to government via inflation or to the hospitals via expensive medical treatment

Home ownership provides some added benefit as it removes uncertainty.
Home ownership with enslavement - removes mobility (if rent != mortgage) there is no point renting your house out.

When the Japanese bubble burst in 1990 many family oriented Japanese were scarred so much by it that an entire generation has turned away from raising families and its population growth has turned negative. Same in Russia. In Europe and America the population is only growing due to migrants.

http://www.economist.com/content/indian-summary

Apart from filling basic needs to live - The main philosophy of life is to live a better quality of life and retire peacefully - and in the process enjoy the humanities (art craft culture food social events movies etc) because without those the purpose of being alive is just hollow reproduction. From that standpoint - owning a home is not a necessity - however shelter is.

So dont feel disheartened by these crazy prices. I have said before and will say again - the nexus of the bankers is so vast that nothing short of war or catastrophe will collapse their dictat.

Anonymous said...

The current Housing prices to - Annual Income ratio is gone back to the same levels as 1950's & 60's when the pay was pathetically low while real estate price was resonable (Relatively). But only difference to then and now is that during olden days you saved and then built your house with some minor loan, whereas nowerdays 70% of that is a loan that keeps you enslaved to the bank for 15 or more years. So it is borrowed capital that keeps running the real estate market and the office peer pressure make everyone go for a loan anticipating that a 15Lakh 2BHK house three years back with a current value of 45 Lakhs would go for may be 3 crores and so on.

If this is going to be a bubble then I think it will take a huge hit in Indian economy.

Bangalore Property said...

Provident housing wish really craves for a peaceful yet word-class lifestyle in today's changing India.Affordable housing in bangalore also stems from the fact that easy and not so taxing wish to have a 2 bhk flats in posh bangalore is well-justified.

flats for sale in chennai said...

Job cuts at financial firms are climbing after falling to a 14-year low of about 24,000 announced last year, according to data compiled by Challenger. This year’s reduction “might very well” be more than double 2010’s number, CEO Challenger said today in a phone interview.
http;//flatsforsaleatchennai.in