Tuesday, June 14, 2011

India's subprime builders stocks

Here is a brilliant article by R Jaganathan on the destruction of weath in the real estate stocks.  I had written a similar article few years ago when the parabolic real estate stocks had crashed to the earth and people were holding losses of upto 90%. 

>>> Article below. I have cut paste it, just in case some smart Alec decides that it is no longer new-worthy. 

A curious phenomenon exists in the real estate sector. In the last three-and-odd years, you know, I know, and the dog at the lamp-post knows, that land prices have only gone up, flats cost more, and our EMIs on housing loans have gone up. We are paying through our noses for the few square feet we want to call our home.

Who gains when this happens? One presumes that the real estate companies and builders must be raking in the moolah.

But here’s the paradox: between January 2008 and June 2011, stock market listed real estate companies have destroyed investor value. The Bombay Stock Exchange Real Estate Index has dropped vertically by 85%, yes, 85%, when the broader market has fallen less than a fifth. The BSE Sensex fell by 15% during this time.

In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. AFP
Investors have cried all the way to their brokers. In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. DLF leads the list of losers— or rather, loss-creators— with a drop in market value of over Rs 1,43,520 crore.


What gives? When house prices have either not fallen too much and, in fact, may have only risen, when the land on which these houses were built was probably bought when prices were lower, why have real estate companies left investors holding the sack?

Far from investors deserting in droves, companies like DLF have, in fact, drawn new and more powerful investors. One example is Robert Vadra, hubby of Priyanka Gandhi, daughter of Sonia Gandhi.

According to a report in The Economic Times a few months ago, Vadra has been quietly diversifying away from his jewellery and handicrafts business into real estate. The paper says:

“…the 42-year-old Vadra, known for his punishing fitness regime and love for fast bikes, has sought to scale up and diversify his business activities since 2008, acquiring tracts of land in Haryana and Rajasthan, a 50% stake in a leading business hotel in Delhi, and attempting an entry into the business of chartering aircraft. Regulatory filings available in the public domain and reviewed by ET reporters reveal the changing graph of Vadra’s business interests. These include wide-ranging transactions with the DLF Group.”

Someone married into the country’s first family presumably has lots of advice available to him on how profitable, or unprofitable, the real estate business is, as is evident from the fall in the market values of shares. But we are surely missing something here?

Sure, we are. When house prices are high, when the profits reported on balance-sheets are falling, and share values reflect the same thing, it can mean only one thing: poor corporate governance. And in the real estate business, poor corporate governance means the profits may be hidden somewhere else, and investors are left sucking their thumbs.

Anecdotal evidence tells us that land is the currency used by politicians for storing their ill-gotten wealth. In fact, almost all recent scams implicating, bureaucrats and even judges involve land.

Sharad Pawar, the Nationalist Congress Party president, is widely believed to be a pastmaster in this business (Read more on this here.) Karnataka Chief Minister BS Yeddyurappa is under fire for corruption due to alleged land-grabs by his family members. (Read and listen here.)

The Adarsh Society scam, which cost Ashok Chavan his job as Chief Minister in Maharashtra, is about real estate. It also implicates his predecessor, Vilasrao Deshmukh.

YS Jagan Mohan Reddy, son of late Andhra Chief Minister YS Rajasekhara Reddy, is accused of owning lots of real estate in Andhra and Bangalore, as a Firstpost expose last month showed.

The Satyam scandal, where Chairman B Ramalinga Raju confessed to overstating accounts and profits, is also related to property: money was siphoned off to Maytas, a real estate company. And Jagan Reddy’s father YSR was a key player in allocating land and infrastructure projects to Maytas (reverse of Satyam).

Several judges of the higher judiciary are also being accused on involvement in land deals. Among them are former Chief Justice of India KG Balakrishnan, and Paul J Dinakaran, former Chief Justice of the Karnataka High Court, who is now being probed by a Parliamentary committee for various unexplained dealings.

If we have established the close linkage between the powerful and real estate skullduggery with this indicative list, here’s a speculative pointer: a part of the steep fall in the market values of listed real estate companies represents money parked elsewhere on behalf of the powerful.

If the total drop in value is Rs 2,66,952 crore for just 10 companies, and assuming even a 40% value drop due to weak sentiment in real estate stocks (when the BSE Sensex has fallen 15%), we are still left with an unexplained loss of over Rs 1,60,000 crore.

It is more than likely that this loss represents value that lies outside the companies in the hands of speculators, politicians, bureaucrats and middlemen who are part of the realty corruption chain.

And remember, we have only talked about listed companies. The real, real estate sector, may be even bigger than this.

91 comments:

Anonymous said...

2.5 lakh crores is nothing compared to scams Indians are doing nowdays. I think average scam we hear is more than 10,000 lakh crore.

Low RE stocks means RE will fall drastically at some point. Fundamentals do not support these prices and investors have already shorted all RE stocks.

==> said...

How deep is deep. read on...

What's wrong with the real estate sector in India

http://www.realestatemumbai.com/NewsDetail.aspx?news=1819

Anonymous said...

==> said likes to deep throat.

"How deep is deep"

shailesh said...

Very nice article. Worth a read...

How deep is deep. read on...

What's wrong with the real estate sector in India


http://www.realestatemumbai.com/NewsDetail.aspx?news=1819


5:25 AM

==> said...

==> said likes to deep throat.

"How deep is deep"


==> What was that? something new on RE that only you understand or experienced... want to share with crowd here.

Anonymous said...

If the article is true and corruption money is used to buy real estate then a corrupt government will not want to let real estate prices fall. So this means the other possible outcome -- high inflation and collapse of Indian rupee against the US dollar.

Anonymous said...

I'm not so sure that the real estate is going to bottom out. Most big time investors, though their investment value is gone down by 85%, are holding on their assets as they do not know where else to park the money or afraid to venture into other investments.

Unless a drastic changes in the current laws come into effect, like long jail sentences for amassing illegal wealth, there will be little change from the current scenario.

Anonymous said...

http://www.cnbc.com/id/43395857

US Housing Crisis Is Now Worse Than Great Depression

Anonymous said...

http://www.cnbc.com/id/43390351

India's May Inflation Accelerates, Rate Hike Seen

==> said...

i like it deep

Anonymous said...

Salary hikes back in double digits in 2011




http://timesofindia.indiatimes.com/business/india-business/Salary-hikes-back-in-double-digits-in-2011/articleshow/8844816.cms


Just waiting for the land owners to increase the costs just after reading this article.

==> said...

Vik,

Do you allow non RE and personal attack comments, let us know... I can ramp up your blog site - will surely make few anons hide their head in shame in their ass. Your choice - keep it clean or filthy.

Delete this post if you have to.

Thanks.
==>

==> said...

add impersonation to the list

skeptic's ghost said...

Nice article.

The sad part is that Nexus of politicians, babusm builders and brokers has grown so much that common salaried people and tax payers have been been systematically priced out of RE.

India's bubble is unlike China's (2005-date) or Japan's (1888-1990) bubble which are more like Top Down government ordered / RE company ordered construction projects - this here is real crooks from bottom who will fool farmers and "hadap" their land and make money as middle men along with corrupt officials and politicians (and mafia)

Only decimation of Rupee value and change in the corrupt Congress via a revolutionarily honest regime will fix this.
Unfortunately since McManmohan was voted in 2009, this situation wont change until 2013 and assuming the CEC is not corrupt too (electronic d'oh)

skeptic's ghost said...

Correction Japan's 1988-1990 bubble
en.wikipedia.org/wiki/Japanese_asset_price_bubble

and not 1888

==> impersonator said...

or the solution is for the government to build 325 million houses/apartments assuming 4 ppl per household.

d2thdr said...

I see hyperinflation in India some time soon. It perhaps would be just before it happens in USA and west. Hyperinflation is very bad, but sometimes its the best thing in the world, as it gets rid of all the shit. Buy gold.

Read more on this at fofoa.blogspot.com

I think we need it.

Anonymous said...

India is already seeing hyperinflation. 17-20% inflation is hyperinflation.

Return on money is negative as inflation - real interest rates = big negative.

GSM said...

India is already seeing hyperinflation. 17-20% inflation is hyperinflation.

17-20% is run away inflation not hyperinflation. Hyperinflation where the inflation rate is like 1000% a year where you experience fall in savings value every day, every hour.We are not yet there.

REBear said...

We still do not know whether the current policies followed by central banks and governments worldwide will end in high inflation or deflation. That is, which one of excessive money supply or the velocity of money movement rule. Either way, it would be bad and as Marc Faber predicts, US will go for a war. In case of war, its only Gold that wins, not the real estate.

d2thdr said...

This apparent period of deflation is the phony stage created to lull the masses into thinking that deflation will rule the day. This is the phase when hyperinflation kicks in. We are all hyperinflated in real terms, what is left is just printing of cash.

Look at the grap of zimbabwe US dollar exchage rate of 2002 2003- an apparent deflation gave way to hyperinflation. same story with argentinian peso.

AS Indians we buy gold anyway. I encourage you all to buy even more. SOON.

Anonymous said...

Riots have already started in China due to high inflation. Chinese RE is coming to a burst in the next few months and that will take down all of South Asia and Australia.

http://online.wsj.com/article/SB10001424052702304665904576385420593195718.html

==> said...

Riots have already started in China due to high inflation. Chinese RE is coming to a burst in the next few months and that will take down all of South Asia and Australia.

http://online.wsj.com/article/SB10001424052702304665904576385420593195718.html


==> But but India is different. isn't it? People's earnings have grown many fold, corruption has grown too, so has people ability to chalta hai attitude.

Also, do you know black money and corruption in China? any articles, info, statistics?

Bhai, India ki baat hi kuch aur hai. If you know the ways you can get away with anything.

Anonymous said...

=> Due to black money and corruption it is all the more reason that India would see its own crisis. DOn't be too optimistic on India's growth and that people can get away stealing money or committing crime. Pot is almost full and it may erupt soon.

Anonymous said...

"Due to black money and corruption it is all the more reason that India would see its own crisis"

What crisis????? You know and we all know that if one is flush with money, he or she is untouchable by law. Crisis may affect us but not the moneywalas. Top to bottom, all are corrupt, starting from President/Prime minister to the lowest level of civil servant. Anuone could be bought.

The only ray of hope is the naxalite movement, but then they also could be highly corrupt

reffi

Anonymous said...

Anon above:

Look at it at a macro economic level. All the liquidity will evaporate when the world crisis begins.

==> said...

DOn't be too optimistic on India's growth and that people can get away stealing money or committing crime.

==> I was not being optimistic, I just stated the current reality.


Pot is almost full and it may erupt soon.

==> This pot is bottomless pit with many hungry people at bottom of the pit, not possible to fill soon.. not at least in next 100 years.


Ever wonder why the houses are selling for 1+ crores easy? because there are buyers whether we like it or not. We need this maniac RE prices to shoot high with investors money tied down, it should be so high that it takes away ALL buying potential... and then... then fun begins, I promise at that time slicing and dicing will be swift.

skeptic's ghost said...

2.6 lakh crores = 2600 billion INR
which is about 580 billion US$ or 0.58 trillion US$

Isn't that about the size of India's annual GDP?

I am guessing all this money pumped came for the 800 billion US$ bailout after 2008 banking crisis which was funded by China to America

Bernanke-McManmohan-HuJintao Note Chapai machine at work

Anonymous said...

"We need this maniac RE prices to shoot high with investors money tied down, it should be so high that it takes away ALL buying potential."

when do you expect this to happen?

Anonymous said...

Septic Ghost, 2600 billion Rupees = 58 billion USD. You have got one zero extra at the end.

I hope your job does not involve math

skeptic's ghost said...

@Anonymous - ok you win (sorry for the miscalc) -

Either ways 58 billion $ sounds much less than 2.6 lakh crore Rs.

Nevertheless This exposure does not seem un-bailout-able.

China's internal debt is mostly unaccounted and estimated between 300 to 400 billion

I keep hearing that the total vested 6 billion square feet of unoccupied space (commercial and residential) in China with no one to fill them up

Someone just mentioned govt should build 300 million homes - I bet China tried that and has built up huge govt debt because these properties are market valued.
If there is value drop the govt will have to write them off the books.

www.chinahearsay.com/bailing-out-chinas-local-governments-finally/

Anonymous said...

If Indian govt builds 300 million homes, then each minister, babu etc will have atleast 8-10 homes in their names. Unlike China, India cannot build ghost cities without lining up all GOI babus pockets, which means, taking money from the poor and passing it to the babus.. Dont think this will fly in India

==> said...

Transactions on the rise

http://www.realestatemumbai.com/NewsDetail.aspx?news=1823

Anonymous said...

The situation in our country is hopeless. We, south indians are suffering because of the corrupt north that adds millions of babies everyday to the population. South Indians should fight for separate nationhood and once this is achieved, south india (dravidanadu) will in no time, be one of the most prosperous south asian nation

Anonymous said...

India growth is solid, RE rising, salaries on rise, low day to day expenses, high earnings, climate is great.

USA story is opposite and is on decline, salaries decline or stagnant, high cost of living, extreme climates, high healthcare expenses, etc.

should I opt to return to India?

Anonymous said...

@Anon above,
Have you ever asked
1. Why are people from India travel to Guatemala and then hitchhike to USA via Mexico. They pay 5-10 lakhs ($10,000~$20000) just for the journey knowing that success rate is 30% and many perish

2. Why do Indians travel to North Africa and try to enter spain paying hefty sums to smugglers

3. Why do Indians go to saudi, Dubai to work as slaves


India is shining for the corrupt few and the rest live in ever increasing poverty.

Will you believe if I tell you that an 2 b/r apartment in a slum costs $250,000 and up.

A railway compartment meant for 50 is used by 500 people to travel

75% of the mumbai population shits in the open, in full public view, for lack of toilets

well, India is indeed shining for few, who can afford slaves and can live in filth and close their eyes towards the hungry .

shailesh said...

The biggest challenge for folks who visit this blog and write about Housing issues, is that, you are in minority....

First of all, 50% of India is so poor, they are concerned mainly food and clothes. Out of remaining, 30% of them are lower middle class, and can only afford to rent. They can not at present think of buying. Most of them live in urban slums. That leaves only 20% of upward mobile population, whose income has increased in last decade. Even in this group, may be 15% already own home either via inheritance, or just being lucky of buying may be the recent boom started. So, that leaves with at the most 5% (may be even much less) group, that is upwardly mobile, but has been priced out due to recent boom.

This group does not represent big voting block, so politicians have no interest in them. Since in most town, Land is controlled by Politicians and Bureaucrats, it has to be greased by Builders, which is going to pass the buck to consumers, with additional profit backed in.

The only way this group can be heard if they use technology like Internet & Media outlets. Unfortunately, this group is least vocal and have no experience or interest in organizing. Now economics will take its course, and boom will deflate. But it is going to be long drawn process....

shailesh said...

Indian real estate sector: In a tougher spot

Skyrocketing prices have put off buyers, leading to a piling up of unsold inventory.

"The residential property prices are exorbitant at Mumbai's prime locations. 180 units sold in Mumbai from January to March 2011 were priced above an average capital value of Rs20,000/sq ft. No wonder the market is slowing down perceptibly now. Around 3,350 units priced at Rs20,000/sq ft and above remained unsold by the end of March 2011 in the city," said Himadri Mayank, manager-research & real estate intelligence service, Jones Lang LaSalle India.

Liases Foras, realty researchers, had estimated that almost 88,000 flats remain unsold in Mumbai. A Hindustan Times report says that there has been a 30% rise in the inventories of real estate giants over the last year. DLF, HDIL and Indiabulls Real Estate have inventories collectively worth Rs23,197 crore on their respective balance sheets as on 31st March.

shailesh said...

I hope someone does some investigative reporting and find out what really happened? How come 1250 acre of Agri land gets converted to Residential & Commercial? The bad part is, the farmers who probably used to own land, probably got least amount. Most money will be made by Builder, Politician and some Mafia.

Mega deal inked for township in Panvel

shailesh said...

Well, We start the downward journey....

Mumbai realtors offer discount as sales drop

Cash-strapped developers in Mumbai have started to offer discounts for residential projects by around 10-15 per cent to lure customers as sales in the financial capital fell by around 35-40 per cent in January-March quarter. Falling sales are pressuring the cash flows of developers who have a heavy debt load.

Ravi Ahuja, ED at Cushman & Wakefield, said real estate companies have no option but to increase sales by giving discounts as their liquidity situation is tight. “Most of the companies have huge debt and banks have increased interest rates from around 8-9 per cent to as high as 14 per cent. Given the weak market condition getting cash from private equity funds or private lenders is not easy. Thus, they are left with no other option but to give some discount and clear inventories. It is better to clear inventory and generate cash by offering discounts rather than pay high interest rates and borrow from outside,” said Ahuja.

A senior industry official declining to be identified said that Rustomjee is offering the flats in the suburb of Bandra (east) at Rs 15,000 per sq ft, whereas, the rates in that area is around Rs 25,000 per sq ft.

“The downward pressure on prices is likely to continue for the next two quarters at least in cities like Mumbai and Delhi where prices have increased too fast and there is over-supply. Other parts of the country may not witness much correction and prices are likely to remain stable,” said Ganesh Vasudevan, business head at Indiaproperty.com.

shailesh said...

India's realty regulatory bill aims to weed out fraudulent developers

Dubai: It may have come a bit late to prevent many Indian investors, domestic and non-resident alike, getting burned by dodgy developers. But the frequency of such instances could come down dramatically with the coming into law of India's ambitious Real Estate Regulatory bill.

To be introduced during the upcoming session of Parliament, the bill sets out to protect the interest of investors and streamline the development clearance procedures. The legislation, when it comes into effect, could bring about sweeping reforms of the country's current lax regime governing investor rights, according to industry and legal sources.

"Such legislation will bring better governance, [and] if the regulation is enforced properly, one can expect positive outcomes," said Ajit Jakhadi, advocate practising at the Mumbai High Court and a specialist in real estate regulations.

The Regulatory Authority would bring in processes to govern the construction, sales, transfer and management of residential buildings as well as other properties. It would ensure that developers and property investors alike start reading from the same script.

shailesh said...

Sell the idea, buy the land

Over the years, land acquisition has become a dirty term in India. In the coming days, it will only become more controversial unless the Centre and the states learn the art of persuasion and honestly work out deals acceptable to both the land losers and the land acquirers. Simply by using the archaic principle of 'eminent domain' to forcibly acquire land will only exacerbate the already tense situation that many parts of the country are witnessing today.

But the Posco story is not only about the Orissa government's high-handedness. It is also about politics. Months after giving conditional approvals to the project, environment minister Jairam Ramesh is now lecturing Naveen Patnaik's BJD government against "forcible acquisition of land".

You can't get more confusing than this. It was his ministry that set the ball rolling by giving the clearances. Surely, the minister didn't think that the state would be doing nothing after getting the green signal?

Unfortunately, this kind of confusion - and petty politicking - has become the leitmotif of India's land acquisition process. Minus a law that sets the ground rules for engagement between a buyer and a seller, every protest becomes a hostage to negative politics.

Pawan said...

Some respite coming for renters:
http://www.gurgaonscoop.com/story/2011/6/16/4733/90501

One more reason to not buy at these insane prices.

shailesh said...

Pawan: That is absolutely horrible precedence.

Just look at what Rent control has done in Old Mumbai. There are homes built in 1940's still renting at few hundred rupees, and no maintenance done by landlords. Also what about private property rights. If I own a property, I should be allowed to decide whether to rent or not.

If government is really serious, why doesn't it make policies that will remove corruption and promote new housing development. The best government can do is stay out of regulating market based system. Let system correct itself. At the least they can publish all real estate transactions and get rid of black money in system. This creates more chances for Babu's to get more money from home owners.

shailesh said...

This are ridiculous prices....

India's Homebuyers Gaining Upper Hand

Take for example, Noida, the Delhi suburb that Mr. Dalal wants to move to, prices on a three-bedroom "affordable" apartment go up to 8.1 million rupees ($181,208) or more.

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==> said...

Ultimately someone has to foot the bill, someone has pay the high RE - if not today then tomorrow. There is no escape other than people demanding more salaries (if employed) or more cost for product (if self-employed or running company).

If I buy today 1 crore worth flat, what amount would I sell it for after 5 years? Will earnings of buyers keep in sync with expenses after 5 years?

DingDing said...

demand != grant

Anonymous said...

Enough of crap sundaas bhai.

Anonymous said...

Desis home in on London in clusters

http://timesofindia.indiatimes.com/india/Desis-home-in-on-London-in-clusters/articleshow/8894860.cms

80% of such home buyers are residing in India but buying home abroad for what ????? Guess

gujju bhai said...

The same is happening here in the US. People congregating to buy homes in California, Miami and NJ...

Prices of nice homes with fancy amenities like your own yard and garden are cheaper than a 2 BHK in India.

Go figure! NRI's are hoarding their money to buy 2nd and 3rd houses in this recession and Indians are also coming over here...While in India RE Agents are selling mungfali!!

Anonymous said...

these guys are a minority and mostly very rich. they can buy 10 houses if they wish in london or mumbai

Anonymous said...

Just purchased a 800 sq ft condo in mid-town Manhattan (NY) for $150K (equivalent to Rs 66 lakhs). carpert area is 800 sq ft. So price is about Rs 8000 per sq ft. Compare this to locations in Bombay Central...I have a renter lined up fo $1300 per month or Rs 52000 per month. Should double my investment in 5 years. Rental income plus appreciation....

Anonymous said...

Just to add to the posting at 5.40 Very honestly, 6 years ago I thought I would never be able to afford a property in New York, leave alone Manhattan. So tides do change. For all the folks who think that they cannot afford a property in Mumbai (my beloved hometown), be patient and your turn will come as soon as I cash out of my flat in Mumbai...

gOlDfInGeR

Anonymous said...

Over the past 3 years I have purchased about 2 properties and approximately 5 kgs of 24 carat gold. Looking to sel property as made good profit.

Property is dead in india and in usa as well.

Gurjeet said...

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And save your Rs.200 per sq ft.
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Gurjeet said...

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Starting At Just 15L. Book Today!
And save your Rs.200 per sq ft.
Contact : 9650719143

Anonymous said...

Gurjeet - You pimp....

Anonymous said...

Gurjeet, you can buy or rent a home but you cannot buy or rent a brain.

Anonymous said...

Off late, people with schizophrenia have started writing on this blog. One typical example is, Anonymous 3:21 Am.

Anonymous said...

On rising inflation, Chetan Ahya and Derrick Y Kam of Morgan Stanley said in a note to clients: “India and China have relied largely on pushing growth by using loose fiscal and monetary policy. At the onslaught of the credit crisis, this approach was justified, considering the pace at which the global credit crisis unfolded. However, we believe that the policy makers relied on this rather less productive gro­wth dynamic for too long, pushing inflation higher.”

Ghosh of Mirae, which as an FII has $2.7 billion exposure in India, has a warning for investors in Indian market: “While the recent escalation of the euro zone crisis has been priced in by global markets, any further aggravation may have catastrophic impact on credit markets and tremors may reach Indian markets with the ghosts of risk aversion returning to haunt and spook investors.”

shailesh said...

India’s Real Estate Slides As Demand Down, Inventories Up

MUMBAI – Indians are not buying homes now like they used to, thanks to high prices and costly loans. There is a 30% rise in the inventories of real estate giants over last year, at Rs 25,000 to Rs 30,000 crore. The developers themselves deny that inventory is piling up, but industry experts say that the high price levels are acting as a deterrent for potential investors. Mumbai and the national capital region (NCR) are the worst-hit, they say.

Three of the top 10 real estate players by market size — DLF, HDIL and Indiabulls Real Estate — have inventories worth Rs 23,197 crore on their balance sheet as on March 31 2011 (see table), with year-on-year increase of 26%, 28% and 93% respectively in holdings.

“If you go through the property registration figures in Mumbai in 2011, you would see that there is a sharp fall (year-on-year) of 20% to 30% depending on which month you’re looking at,” said Pranay Vakil, chairman of real estate consultant Knight Frank India. “This reflects a fact that buyers are not willing to enter the real estate market at present prices.”

A detailed email questionnaire sent to DLF, HDIL and Indiabulls remain unanswered.

A senior official at DLF said the high inventories or stocks that appear on its balance sheet merely reflect the accounting method of the company.

Anonymous said...

Any of you enlightened folks know what this new Mauritius treaty is all about and what impact it will have on black money? I know how to google, but I don't understand the finance lingo very well.

Anyone care to explain in plain English for the not so bright folks like me?

Thanks guys, you are the best!

Anonymous said...

Sales may go down in India, but prices never go down. I have seen a gazillion articles posted here claiming a decline in sales which is NEVER ACCOMPANIED BY A DECLINE IN PRICES.

Mumbaikar said...

To anon above
Builders are in the game where they want to sell less number of units for higher prices so that profit is high and they can create euphoria in the market that prices will never reduce. This will help also to suck in investors.

That is indication that market is tired of going up for no reasons and will start changing direction. It will follow the RE index very soon.

Just wait and watch.

Pawan said...

Anon 12:58PM:

1) If I tell you petrol prices will go up 2 Rs from midnight tonight then what will you do?

2) If I tell you petrol prices will remain unchanged for next 6 months what will you do?

3) If I tell you petrol prices will be reduced next month what will you do?

In which of these three scenarios would you rush to buy?

Now replace petrol with real estate in the Qs above.

Anonymous said...

in the example above.. also replace Rs.2 with Rs. 2,00,000 and then answer.

wht wud u do?

Anonymous said...

I am not Anon 12:58PM but I would buy what I normally buy.

petrol is necessity and low cost.

Anonymous said...

and that's just my opinion.

it may not be low cost for everyone.

Lake Placid Real Estate said...

This is the Very nice article.You talking about the destruction of weath in the real estate stocks. I know,A curious phenomenon exists in the real estate sector. In the last three-and-odd years.Thanks to you for sharing it.
Lake Placid Real Estate

Anonymous said...

to anon above:

me no speak engrezi

Mumbaikar said...

To all anon above
You can't compare petrol with RE, petrol is consumable item and you don't take a loan to pay for petrol neither you stay in the petrol, you don't have any attachment with petrol neither u care from which location u buy it etc. House is part of your life whereas petrol is need of an hour.

So stop comparing petrol which will evaporate in air if you don't lock it properly, RE doesn't.

polt said...

To Mumbaikar at 7.14,
Ask the Americans/Irish/Japanese/Spanish homeowners and they will tell you how their investments in real estate evaporated.

Anonymous said...

Polt mamu,

Why ask Americans/Irish/Japanese/Spanish homeowners. Why compare our situation with them.

None of the countries that you mention deal with black money. Our catastrophic situation is due to corruption and black money. No one touches real estate in India if they dont have black paisa

There will be a slowdown in construction but prices will not fall. Once the existing inventory is finished, a second phase of development will start and prices are going follow the current trend.

Frustrated said...

Anon above

Agree that India's real estate situation is unique and shouldn't be compared with developed nations. However, your assumption that price will not fluctuate is far fetched. We have to wait and watch the trend post monsoon (diwali) season.

What is happening is the buried or hidden money is splashed into the market resulting in a artificial price rise as most of it is invested in real estate. No one knows the extent of this hidden wealth but it is going to bottom out some day. It may be 5 years from now, or might go on for another 2 decades.
It is prudent to move out to less expensive/affordable areas than wait for the miracle to happen. Not so many people are willing to take this decision and suffer . Waiting for the prices to drop in Mumbai is just like waiting for the lottery to strike

Frustrated

Amit said...

http://economictimes.indiatimes.com/markets/real-estate/realty-trends/builders-fail-to-meet-deadlines-as-home-buyers-pile-up-pressure/articleshow/8944444.cms

What is the endgame here?

Anonymous said...

Endgame is RE falling by 70% or more. It might take some years though as GOI and corrupt people will try to keep it high. But eventually the prices will fall.

My take: At least 20-25% by the end of this year and then 8-10% per year fo rthe next 5 years.

polt said...

To all those uniformed people above who keep harping on "how we are different", please read "This time is different" by Reinhart and Rogoff. It covers 800 years of booms and busts and every single time in every country, people found some justification saying 'oh its different this time, oh we are different' . If you do not know your history, you are doomed to repeat it.

In India, where was the black money you talk of during the 2008 slowdown when RE prices fell 30-40% in just a few months and all big builders had to be bailed out by our banks. It could not have disappeared just like that. We technically did not even have a recession (a few qtrs of negative growth), we just had a slowdown. Imagine what a genuine recession can do.

polt said...

Forgot to add above.
Most people forget that what matters is not just money supply, but the velocity of money (think of it as the number of transactions). Velocity can be seriously affected by sentiment. All the black money in the world will not make up for a negative sentiment and 2007-2008 provides a perfect example.

Anonymous said...

Yes I agree. Once velocity increases it signifies loss of confidence in the currency. People want to rid of useless currency like Rupee and get sometthing tangible. RE perhaps. But in a camp, you do not need to be fastest camper, you have to be faster than the slowest camper so that you can run away safely from a bear.

Inflation is rising. Govt reports it to 10%, actually its about 20%. With high inflation, property investment looks like a reasonable idea. However, RE has performed jusr 12% over the last 15 years compounded. Stocks about 18%. I do not endorse stocks or RE. Both are dead as a dodo.

Anonymous said...

polt mamu,

Are you taking your medications as prescribed by your psychotherapist. If not, it is high time you start following your doctor's advise

Well wisher

Anonymous said...

Anon above:

Very soon you'll need medicines. I think what Polt is saying makes a lot of sense. Lot of specualtors will soon lose not only money but their health also, and would need medicines.

polt said...

Anon at 5.04 advising me on medicines -

Ad hominem attacks are pointless.
If you disagree with something, state what and why. It will keep the standard of debate.

In any case, you can look up velocity of money here
http://en.wikipedia.org/wiki/Velocity_of_money

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...

Mumbaikar said...

I agree with Polt Mamu. He is talking sensibly. It is corrupt babus and politicians have asked banks to lend money or postponed the recovery of loan which had caused this spiral effect in RE prices.
India never had recession will never have recession for 30 more years. Indian economy is still agricultural based and all farmers work through out the year.
It is business lobby who took advantage of recession to squeeze employees. Wait for few more months and RE market will get direction.

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