Thursday, August 04, 2011

Bombay Dyeing moves into Real estate, Retail

Parsee business and trusts like Bombay Dyeing, Godrej, Tata hold vast amounts of prime land in Mumbai. These guys are are now unlocking the land value by developing these land parcels and selling these outrageously priced apartments to black money holders. The airline GoAir which is run by Jeh Wadia is a flop airline. I wonder how CNBC TV18 touts it as a successful aviation business. In fact Jeh Wadia had made some disparaging remarks on the poor kids when he started the airline promotions at 500 Rs per seat to Goa. I wonder if he will say the same things about the rich luxury apartment owners who will still be living in 'below the poverty line' apartments as compared to a rich trust fund baby.

On the retail front with the imminent arrival of supermarket chains like  Walmart, Tesco and CarreFour into the top 6 metro cities of India, I am expecting a big jump in prices for  rentals/outright sales of shops in all major neighborhoods. Indian cities are just the right model for Tesco Express stores (1000-5000 sq ft)  which stock Kirana style items while maintaining high quality standards of goods and customer service. A Tesco Express/Walmart express in every neighborhood is not unthinkable as these guys have the processes and knowhow defined to handle large scale operations smoothly

Project ‘ Bombay Dyeing Makeover’ has begun under the leadership of Jeh Wadia, the man behind Wadia group’s successful aviation business. CNBC-TV18’s Tanvi Shukla reports that the two key takeaways from the first annual general meeting (AGM) after Jeh Wadia took over as joint Managing Director of Bombay Dyeing is one, their focus on real estate and two, de-focusing from textiles and focusing more on retail part of the business.
To begin with, real estate is something that management has been talking about. Today they updated the shareholders that construction work has finally begun at the Dadar Spring Mill project. They are also going to be developing the Worli property.

In an interview Wadia says that high interest rates will put pressure on people buying apartments. “But fortunately for us we don’t have very high volumes, we have low volumes. Also, we are in the luxury end of the spectrum. So I don’t see much of a shortage as far as sales are concerned” he added.

Talking about the Group’s retail business, Wadia said that the company will now focus on opening more number of stores and introducing higher value added products. He aims at an entire revamp of the retail business, which would probably give them higher margin profitability, something that they haven’t really seen in the textile business for quite a while.
So Bombay Dyeing seems to be shifting from a textile giant to a company whose core focus will now be in real estate and in retail.

227 comments:

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Anonymous said...

Dombay Dyeing should understand that Bombay RE is dying.

Mr. Wadia is in for a surprise. They will soon start selling clothes again.

Sensex to go down by 500-600 points today based on global cues. This time party really seems to be getting over. I hope no more money is printed.

Anonymous said...

I think Sensex will go under 17000 today.

Anonymous said...

What did Chicken Little say yesterday!!!The sky is falling...LOL

Anonymous said...

Bombay Dyeing was thriving in closed protective market and they are dying due to market competition. So, they decide to jump to another market, RE, which is protected by non-transparent regulation and politician, babu, mafia nexus. They are salivating to sink their teeth on the fat profit margin.
It may be the sign that party's end is near.

Anonymous said...

The party is only over when the tallest tower is built. This is how it has ended everywhere, right from the Biblical Tower of Babel to the Burj Khalifa....Is there any such plan in India, or maybe it was the Commonwealth Wealth Games that did India in, similar to the Olympics in Greece. Greece has been in dire straits ever since

Anonymous said...

Chicken Little says that RE in India will be down 10% in the next three days. All the focus will be on how Indians have lost wealth recently, in the biggest crash that you will witness in the Stock Market.

Anonymous said...

'Make hay when the sun shines'. This is precisely what wadia group is doing. The high end real estate is in great demand and it wont be a surprise that advance booking line must have commenced and closed, and people are being put in waiting lists, the bidders being black moneywale investors.

Anonymous said...

Hang Seng is down by close to 1000 points. Sensex would definitely be down by 700 points or more. They have already enjoyed enough. I hope these idiot MBAs in Mumbai get some sense in their minds. The Finance MBAs are very highly paid scum of the earth. Just fooling people of their hard earned money.

Anonymous said...

Off Topic

I think the great tamasha has begun, grab your popcorns, gold has fallen on margin calls just as in 2008, maybe the last time to buy before the proverbial stuff hits the fan.

Anonymous said...

Sensex went down to 17000 and then recovered 300 points. Well, it needs points to go down next week.

It is indeed close to 400 points down.

Anonymous said...

Chicken Little said "strike one" (first downgrade of US debt is here). This will crash the markets further on Monday. Ripple effect to hit RE in emerging markets hard very very soon.

Anonymous said...

Finance Gurus on the forum.

We have seen the writing on the wall for the collapse of the US economy for quite some time. Don't you think the global markets have already priced this into the stocks/bonds/commodities and real estate?

US/Europe going down means more capital inflow into emerging
markets. So, get ready for another 300% increase in real estate prices.

jabardast bhai

Pawan said...

US/Europe going down means more capital inflow into emerging
markets.


I don't think so. If US/Europe go down then everything goes down with it. Who would the Indian and Chinese export their best fruits, clothes, software services and toys to?

Even if more money flows in, RBI will put mechanisms in place, along with interest rate hikes, to stem the flow.

The basic thing we need to understand that the supposed growth story is all fake. We are still exporting our cheap services and cheap labour to those rich countries. We are yet to produce an iconic company of the stature of Ford, GE, Intel, Microsoft or even Facebook. Reason? If you want to make money in India, just kiss the politician's @$$ and loot public money in connivance with him. Why do anything hard or creative?

IndiaisfuckedfuckedfuckedIndiaisfucked said...

Interesting article on Tehelka on the rate hikes..... http://www.tehelka.com/story_main50.asp?filename=Ws270711band_aids.asp

kalpeshmmaniar said...

Sensex bounced exactly from the level of 16990, I had mentioned that sensex could hit 16969, sensex bounced exactly from 16990.

What next?
August will be volatile month and will see turbulent markets, the present correction would end in September, when markets take off in a big way.

To get accurate forecasting please visit http://www.kalpeshmaniar.com

Anonymous said...

Remeber the good old saying. "Sell in May and come back in September" Right on the money. FOr all those who think RE more FDI is coming to India or emergent countries and RE is going up 300% think again, if US/Europe has to pump money into Emergent countries, then many of the emergent countries will have to take on the debt. If debt rating is lowered how many emergent countries are willing to bet their ass on taking more debt so that they can allow growth. Will India do it. Let GOI start buying US T-Bills if they have the balls...

Anonymous said...

Or maybe GOI will be forced to by the US or even the Italians to take on more debt if they want to grow....

Anonymous said...

To kalpeshmmaniar --

We shall see to that :-)

Anonymous said...

kalpesh - THere is not one monkey who can predict the bottom of anything. Its like trying to guess which day you are going to die, unless you are suicidal. So stop connig people.

Anonymous said...

"The money from heaven will be the path to hell."

Those were the exact words spoken by famed economist and author Robert Wiedemer

"You see, the medicine will become the poison,"

"We will likely see 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012."

Fear is widespread. Outright panic could be next.

The last time we saw an environment like this was three years ago, when investors helplessly watched as the stock market lost 50% of its value.

Amazingly, Robert was warning investors back then too!

polt said...

Mideast markets tumbling in Sunday trading.
Good article on land reforms and the Noida events.
http://new.valueresearchonline.com/story/h2_storyview.asp?str=17703

Hopefully, we will have some genuine land reforms. I dont think politicians can ignore the public pressure and continue with antiquated land acts. We need a transparent, efficient market for real estate.

Pawan said...

We need a transparent, efficient market for real estate.

Any problem gets fixed when it becomes too big. RE trouble is becoming big so it will be fixed soon.

Anonymous said...

The markets will fall so fast it will make everyone's head spin.

--Aam Aadmi

Anonymous said...

Black Moneywales are not going to be affected by the market crash.So, what makes you to think that real estate prices will fall specially in cities like mumbai. Most black moneywales believe in immovable assets like real estate, gold etc. , not the volatile stocks.

Anonymous said...

where were the black money wallah's in 2008 when RE crashed in India.

Anonymous said...

India's bubble will burst with this slowdown. It will take 10 years for India to come out of their excess spending.

RE going down by 50-60% soon. Enjoy.

Anonymous said...

Looks like Sensex is going down by 500 points today. I'll be happy to see all those high paid useless MBAs losing their bonuses in Mumbai living in 3-4 crore houses and getting 2 crores of bonus every year with huge salary packages to loot the common man.

Anonymous said...

Totally agree with Anon @7:53. I wonder how RE will be affected though.

Anonymous said...

Anon at 8.47

It is the ignorant mindset creates the bubbles in everything. In short ignorant people contribute towards the greater fool theory and are left holding the bags in the end. India RE is subject to global economic conditions as well and can/will go down when the capital markets suffer.

What goes up must come down to the mean. This applies to everything including Indian RE. Go take some classes on Economics and you will understand why Indian RE will come down.

Indian RE cannot be sustained on scams, black money and people doing coolie work..

Anonymous said...

S&P will downgrade India soon.
BSE Index needs to be 13000 to get to the bottom of this mess. Which means RE will fall 25% minimum.

Anonymous said...

It will be interesting to see what the current riots and lawlessness will do to London RE prices. Everyone the world over (from Indian billionaires to Russian Oil Mughals) invested heavily in London RE believing it was a secure haven of politicial and social stability.

Well, looks like these geniuses did not factor in the masses of uneducated, welfare-leeching, unemployed yobs walking the streets of the city ready to vandalize, maim and generally terrorize the population.

High asset prices are unravelling worldwide. Indian real estate should follow soon. But for God's sake buy quickly when prices dip before the GOI/RBI revvs up the money printing presses again (like they did in 2008-09).

samix said...

Anon above, it's already too late, the GOI seems to have put the presses in motion

http://www.dnaindia.com/india/report_is-government-preparing-a-stimulus-package_1573965

==> said...

If printing helped, we would have govts all over world simply do printing than working... oh wait, they already tried that!

Anyways, Indians feel India is heaven, super power or whatever, has anti gravity matter in their soil.

Let the magic begin.

...and I will wait for show to get over.

Anonymous said...

Helicopter Ben is greasing the presses to start another round of QE. So GOI will follow suit very soon. F*king bas*tar*s! all they know is how to dilute currency. Stay long in Gold and profit from it. RE is risky place to be in now, given that we are going to see interest rate hikes in US and world wide. Easy money days are over. Get ready for 80's style inflation in US which will kill RE in emerging markets.

gOlDfInGeR

Anonymous said...

1000 point drop in BSEN index today for sure.....

Anonymous said...

which means a 6% drop. Exactly whats happening across asia today...

ShashankRao said...

Stock market crash could be engineered by big financial institutiuon to allure retail investers like you and me to buy stocks. Retails investor stayed away from the stock market since 2008. Companies like Goldman tried to bring people to the market by artifically inflating the share market. That didn't work so this idea of crashing the market so that greedy people like you and me run to the market to buy 'low' priced shares..
Remember ..all such financial companies make hugh profit from the buy/sell stock transactions carried out by us.
Stay away...

Pawan said...

That didn't work so this idea of crashing the market so that greedy people like you and me run to the market to buy 'low' priced shares..

You conspiracy theory may be true but if you won't buy stocks, what would you buy? Real estate prices have not crashed. If transactions happen or not, no one is ready to reduce prices.

There was one aptt whose price I was tracking in Gurgaon. At Nifty 4000, it was selling for 4000psf. At Nifty 5000, it was 5000 and at Nifty 6000, it was 6000. Now at Nifty 5000, that aptt is 7000 :(

RE is one way street. So what else do you buy? Buying Gold worth 50L needs a lot of heart when you do not even know what is its real worth.

Also, if a recession is coming then RE will go down too sooner or later. If a recovery happens then stocks will recover too. The medium to long term risk in stocks is much lower than RE. I have no opinion on Gold.

shailesh said...

You may get cheaper homes, thanks to US

There is an overwhelming consensus in the city's real estate community that the downgrading of America's rating and the subsequent tumble in global stock markets will give builders just the excuse they needed to do a course correction in prices to counter flagging sales.

The result? Realty prices in the city may see a 20 per cent fall across the board in less than three months. The situation would be similar to the 2008 slowdown, when builders had slashed prices by 30 per cent to attract buyers.

And there's more good news: The 20 per cent reduction in prices is likely to stay for at least a year.

Paras Gundecha, president, Maharashtra Chambers of Housing Industry (MCHI) said, "The realty market seems to be headed to a situation similar to the one in 2008.

Sales are slow as it is and builders have already started giving discounts to counter the gap in demand and supply. A correction of nearly 20 per cent could be upon us soon."

Anonymous said...

Probably not wise to make a large commitment now and buy a house. If you have waited so long, then a little more wont hurt.

The coming weeks/months will tell us whether this is just momentary panic or something significant. If it signals a genuine recession in the US then expect layoffs and or salary/bonus cuts here. Sentiment can shift very quickly.

Anonymous said...

See, I just saw a two bed house in west subrubs, mumbai in March around 95 lakh with 60:40 payment. Due to some commitments I postpone it for a while and now the same house is for 1.30 crore. This is the reality for all who still thinking and dreaming for market crash. Even after this crash the broker is saying investors are worries about paper asset and will invest more in physical assets which is true as a logic. This will only bring the price to the north bound including gold etc

Pawan said...

Even after this crash the broker is saying investors are worries about paper asset and will invest more in physical assets which is true as a logic.

That exactly is the difference between investor and end-user. Investors will sense a downturn and try to exit early - whether in stock market or in RE.

But as someone else said, what's the problem in waiting a little more when you have already waited for so long.

Another suggestion is to buy what has already corrected - stocks.

REBear said...

Gold to rally exponentially after breaching 1764$, target around 12500$ :

http://www.youtube.com/watch?v=IF24atvNkSo&feature=youtube_gdata_player

shailesh said...

Stay away from real estate sector: Mavani

Mavani told CNBC-TV18, "As far as real estate sector is concerned, it is still early to take a contrarian bet. The sector will first see significant dip before it rises back. It is for several reasons. One, is real estate cycle in terms of actual property prices has yet to play out meaningfully. Prices have declined 10-12-15% in most large markets of Mumbai, Delhi, Bangalore, Pune, Hyderabad, etc. "

He further added, "Secondly, in a falling property prices scenario it is more difficult to offload that inventory only with a significant compromise on profits or maybe losses. That whole cycle is yet to play out. Baring a couple of real estate companies most of them are neck deep in debt. Down cycle is not going to anyway help them on their cash flows. The sector is facing issues like, rising interest rate scenario, pressure on property prices, liquidity issues and huge amount of debt on their balance sheet. The sector has yet to play out the down cycle fully. It is early to take a contrarian call but stay away from it."

shailesh said...

Siva may exit prime Mumbai property for Rs 1,000 cr

In 2009, during the slowdown years for the realty sector, Siva Group had bought 66 per cent in the company that owns the land from DLF, the country's largest developer for Rs 310 crore, valuing the land at Rs 470 crore. Ackruti City and DLF jointly bought the land in 2007 for Rs 350 crore .

So, He has not developed the land, but wants to double his money within 2 year period. Wah bhai Wah !!!

Anonymous said...

I have a question. There are strong rumors that US/Europe cutting down on outsourcing and hiring/importing indian software people ( I wouldn't call them techies or professionals as most of us know these are semi skilled)

In what way this may affect our economy if at all it does and will the real estate also be affected.

Anonymous said...

To anon above
Well outsourcing can not be stopped overnight. This is not manufacturing job where you can find new supplier overnigt and ask them to deliver product at your door step. It is knowledge based industry and u need to find right people with right skill set. Due to dearth of resource at competitive price, work is outsourced to Indian companies,

If you don't want to call IT people techies that's fine, but I feel these guys deserve more respect for their hard work and contribution they have to Indian economy in last couple decades.

Anonymous said...

Obama wants to grow jobs in the US for US citizens, not for Indians; so that he can win the re-election. So there wll be severe tax's levied on companies that outsource their jobs from US; or other way around significant tax benefits for companies that bring back manufacturing jobs back to the US.



US does not need any more imported tech coolies. So we will see manufacturing going back to the US; very high skilled IT work going back to the US for US Citizens and tech coolies in India doing all the grunt work.

Anonymous said...

I dont understand all the IT bashing.

Yes they make more money than most of the white collars. Yes they are major reason for property boom & bubble.

But they are also responsible for some economic progress.

But come to think of it everyone is a slave to either a bank or a builder. Thats its.

You spend your entire lives worth in getting a house where you make the builder & the bank richer.

Anonymous said...

Was just listening to Marc Faber last night, he recommends staying in RE, PM's and Equities as compared to Govt Bonds and Cash. In a worst case scenario the former will hold their value relative to latter.

vance said...

The first thing you need to do is to take a good look at the property before you decide to purchase it. Scrutinize it well. This is the most important thing that you should never forget to do. Ask about your site from nearby locals. Examine the site well. Never ever be negligent when you do this. If you're really serious, you can get a professional to do the inspection for you.
Dr. Phillips Real Estate

KundiAdichan said...

The word 'Techie' has its origin in India and those involved in computer related industry are known as techies, be it a call clerical centre employee or actual technicians. Knowledge of English, easy adaption to slave labour and willingness to work for lower wages than that of western counterparts have made them sought after by foreign companies. These people have contributed a lot our economy and are responsible for india's growth rate since 2000. International companies too have benefited from this lot.

It is highly unlikely that western countries can get rid of their dependence on techies and therefore call centre business will be india's backbone for growth.

Unfortunately builders and real estate developers target these people for their products due to which prices have shot up and are beyond reach to most people.

For real estate woes there is no easy solution in sight.

Anonymous said...

Since everyone keeps talking about America's Debt/GDP ratio, I thought I'd take a look at India's and guess what that too is at an unsustainable 80% and rising.
Although most of it (over 70%) is internal debt it's still not a rosy picture, the govt can inflate the debt away but where would that leave the India growth story ?

I am not overly pessimistic but there are clear signs of danger which the media chooses to conveniently ignore.

Anonymous said...

anon at 11.15

Nay, its India, these kinds of things dont happen in India or with Indians. Indians only have one belief i.e. everything is up. Nobody believe that shit goes downhill.

LOL,,just being sarcastic.

Anonymous said...

@kundi,

From the tone of your message, I guess you are a call center employee. It would be interesting to know how much techies like you make, and how much you spend for housing and social life.

I think that techies may be playing a role in the real estate in a small way, but the big players are corrupt govt. employees and black marketeers. I may be totally wrong, if so please correct me

polt said...

No respite from inflation - http://economictimes.indiatimes.com/news/economy/policy/food-inflation-zooms-to-99-as-rains-restrict-transport/articleshow/9572115.cms

Interest rates up further??

Anonymous said...

Many on this blog say India is different. The folks Down Under also thought that "they too were different". Unfortunately they were not - http://globaleconomicanalysis.blogspot.com/2011/08/secretly-broke-in-australia.html

http://www.smartcompany.com.au/construction-and-engineering/20110804-eighty-five-building-and-construction-firms-go-under-in-a-month-as-sector-hit-by-brittle-economy-ato-clampdown.html

Anonymous said...

@above:
From the Aussie article:

This story is so sad because Australians had every warning in the world. All they had to do was watch the US housing bubble burst. However, you cannot explain anything to anyone with a firm conviction "It's Different Here".

Same stands for India. People are adamant that India is different.

Anonymous said...

Gold is the huge wildcard in India. It is remarkable that Gold is going up even when everything else is going down. Since Indians have vast private holdings of gold, Indians have gotten very wealthy in DOLLAR terms over the past few years. Many people say they all said “Real estate can never go down here” in the US, UK, Dubai, Spain and Australia and now look where we are. All those places don’t have private citizens with vast stores of gold.

Indians can afford to pay their mortgages for a very, very, very long time even in the face of a massive downturn with plenty of layoffs and high unemployment because they can sell their astronomically valued Gold to pay the EMIs and generally keep asset prices high.

The only RE can correct meaningfully is if the Rupee strengthens against Gold.

Hands up anyone here who thinks the Rupee is going to appreciate.

Hello? Hello? Hellooooo???? Anyone here????

Didn’t think so…

skeptic's ghost said...

@ Last anonymous

Rupee won't appreciate because RBI will chapao more and more currency to pump in the system
NREGA, unnecessary government jobs & bureaucracy, PDS, ration, petrol-diesel subsidy, free education, etc is not free

It all falls on the governments' balance sheet - the more the rupee wants to strengthen due to increasing exports, productivity and local demand, the more the governments print money or borrow against govt/civic bonds

China holds roughly 11% of US debt ($1.4 trillion) but Chinese cities and provinces have estimated $3-4 trillion in borrowing to fund Chinese ghost towns and crappy high speed rail. IF prices fell there, who will suffer every one on the planet will (massive writeoff -> massive credit freeze -> mass unemployment -> mass unrest)

India on the other hand has been much cautious in spending with slower bottom up growth. (but rife with corruption and underhand crony capitalism) - even though we dont have fractional reserve, there is massive NPA pile up with banks who have lent the savings of depositors to unscrupulous businesses

I repeat again that The real problem is that consumers who need homes and have salary have to compete with Bankers who can generate money over the fly (domestic or foreign)

Goldman Sachs and friends have reserve to investment ration of 1:16 - which means that for every 1$ saved 16 is lent to other banks. That money is being pumped around without any worry of consequence - which is why the valuations are so unrealistic, the actual asset worth much less and inflation is being exported to third world since those countries are not equally letting currency appreciate for fear of loss of edge in exports

As humans we still look at money as real tangible asset like gold, in reality its not. every Rupee you have is only a fraction in actual value in goods and services - the remaining is cooked up numbers by govts and banks for their own benefit and not ours

Only a warlike cathartic event will collapse RE or these dumb valuations led by banker nexus

Anonymous said...

@Last Poster

Perfect analysis. You just backed up what I was saying in my previous post. The Rupee is a chronically weak currency and if you measure RE in Rupees it will never meaningfully decline because there is virtually an infinite supply of Rupees. Leveraged debtors who bought RE will simply wait for inflation to catch up and pay off their loans with depreciated money. In the meantime the RE prices themselves will keep hurtling higher when measured in Rupees.

If you want to save to buy Indian RE, save in CHF or SGD. In fact, measured in CHF or SGD, Indian RE has already collapsed 30%.

12:14PM

Pawan said...

@last anon
I also raised the same point a few weeks ago. If GOLD is up 5 times in last decade, RE is up 5 times and stock markets are up 5 times as well and if one says that Gold is real money then neither stock markets not RE has given any returns!!!

Why do we then say the RE and stocks are overvalued while Gold is not???

Anonymous said...

@Pawan,

The real issue is that we don’t have a reliable “base currency” against which we can measure the growth of asset prices in order to figure out how much of that growth is real and how much is fraudulent (i.e. a result of Central Bank’s pumping and priming unaccompanied by productivity increases).

Gold isn’t “real money”. In fact I actually agree with the Bernank when he says that Gold isn’t even money. Money is a unit of account, a medium of exchange and a store of value. Gold clearly does not satisfy the first two of those criteria.

The fact of the matter is that Governments have distorted markets in grotesque ways through global negative real interest rates over the past decade to such an extent that money desperately hurtles from asset class to asset class seeking returns…ANY returns. Whether it be in Mumbai housing, Apple stock, Mongolian oil leases or emerging market equities. It is striking that Gold keeps making record highs day after day at the same time that the US Treasury yields keep making record lows day after day. ONE OF THESE TRADES IS DEAD WRONG.

contd below...

Anonymous said...

@Pawan,

Now having said all that and coming back to your question, I’m not sure whether Indian equities are overvalued. Gold is impossible to value because it does not produce any income and its value is simply what the next buyer wants to pay for it. I am utterly convinced however that Real Estate is overvalued. Overvalued in terms of “WHAT” is the real question. I propose that we use “purchasing power” to act as the base currency reference and perform a simple test. Everyone who owns a house in any Indian city is worth at least 1 Crore now. Right? That’s a quarter million US$. You can buy at least 3 Porsche Boxsters with a quarter million US$. This means that every Indian household in the metros has the purchasing power to buy 3 Porsche Boxsters. Does that make any sense? A country which produces next to nothing of global value (except goods on the lowest-end of the manufacturing totem pole, e.g. garments) has its teeming cities filled with families who can each afford 3 Brand new Porsches? That doesn’t make sense at all. That tells me that at least RE is MASSIVELY OVERVALUED in real terms.

polt said...

@Anon - "has its teeming cities filled with families who can each afford 3 Brand new Porsches? "

Agree with your hypothesis. Another way to look at it is -
How many of the families who are 'crorepatis' based on their land holdings, can actually go out and buy the same land today based on their income alone (even if they get a loan based on their income)?
In india, over the last decade or so, rise in asset prices has outpaced the rise in average income (except maybe for highly skilled labour). The difference is explained by easy credit and expectations.

From steve keens fantastic blog -
"One essential aspect of Minsky’s Financial Instability Hypothesis was the argument that there are two price levels in capitalism: consumer prices, which are largely set by a markup on the costs of production, and asset prices, which are determined by expectations and leverage. Over the very long term, these two price levels have to converge, because ultimately the debt that finances asset purchases must be serviced by the sale of goods and services—you can’t forever delay the Day of Reckoning by borrowing more money. But in the short term, a wedge can be driven between them by rising leverage."

At some point asset prices will come back to reality. Stocks already are heading there. RE will follow.

Pawan said...

@Anon, Polt,
Excellent points guys. We need more of such intelligent discussion on this blog; keep it up.

I myself won't buy Gold (except for my wife ;) and won't buy RE at today's prices but I have started buying stocks with the correction and will keep buying hoping to be fully invested by the end of this year.

In between if RE crashes like 20%, I will be buying a house to live in.

Anonymous said...

“Agree with your hypothesis. Another way to look at it is”

Thanks for your comments. I want to stress that I was using Porsche not as an example of a currency in which wealth should be measured but as a stable indicator of RELATIVE wealth.

Porsches are necessarily unaffordable by the vast majority of the World’s population at any point of time, whether in the year 1970, 2011 or 2095; it doesn’t matter. Only a tiny well-heeled elite of the World’s population will at any time be able to afford a single new Porsche (let alone three), not the residents of entire Indian cities.

One crore may not buy you a heck of a lot in India, but globally it is still a lot of money.

Pawan said...

I want to stress that I was using Porsche not as an example of a currency in which wealth should be measured but as a stable indicator of RELATIVE wealth.

You know what, I have been saying this to my friends for years - the wealth of a person is truly indicated by the car he drives not where he lives. Car is a very good reflection of the disposable income of an individual and using this indicator, I see that most crorepatis in Delhi still can't afford to drive a petrol alto ;)

Anonymous said...

Good discussions here.

Point about the Porche example - Indians dont own their homes outright in Mumbai - their bank owns it and they have to pay EMI for 15 years more before they own it.

They could have also bought 3 porches with the same bank loan - except you cant live in a Porche nor is it likely to have appreciation AT ALL - instead it depreciates.

No wage slave is going to become a bank EMI slave for a Porche - but they are brainwashed into doing it for outrageously priced flats.

They rely on the government to depreciate the currency enough to make this a viable option - last 40 years, RE has made good returns only because our currency lost value.

Now that dollar is competing with Rupee in devaluation - and many times Rupee is appreciating as much as 20% - it is no longer a one way street.

Bad inflation and currency depreciation in India can justify even these outrageous RE prices in the long term - to have been sagacious investments.

Most Indian know this instinctively - we have a bad govt and so every RE price will ultimately get justified

Anonymous said...

Last poster is bang on (especially last 2 paragraphs). This is what I have been stating here for a while. RE will correct meaningfully only in real terms and not nominal terms (i.e. not in INR).

If you have been saving in CHF to buy a home, Indian RE prices have been declining for almost every month for the past three years.

However, if you have been saving in INR to buy a home, Indian RE prices have relentlessly increasing month after month after month over the past three years.

Anonymous said...

What if EU collapses and CHF gets weaker due to EU problems.

I think there is a limit to what the Govt. can do in terms of printing. S&P is almost ready to downgrade India's debt. What if it gets downgraded and India cannot print anymore and will get money at very high bond yields. That would take care of RE and all the Govt. excesses completely. This will happen and is a matter of time. Rupee will slide very fast against USD in this scenario upto 30%. I see Rupee at 60 rupees/USD by 2013.

Anonymous said...

I think GOI is trying to stop Anna for his hunger movement as they very well know the mess up they have done to the country and 85% of India's janta. Masses are tired of inflation and the vast gap that they have created.

GOI fears protests like happening in London and Israel which can cause a civil unrest in India. Maybe it is time for a change.

Anonymous said...

“What if EU collapses and CHF gets weaker due to EU problems”

CHF may slide but if it does it won’t be due to EU problems. In fact, the CHF is on a tear right now precisely BECAUSE OF EU problems. If the EU collapses, the CHF will likely skyrocket against the EUR.

“Rupee will slide very fast against USD in this scenario upto 30%. I see Rupee at 60 rupees/USD by 2013.”

If this happens then you can kiss goodbye to any RE correction (in INR). This will make Indian RE exponentially cheaper to NRIs. Further, Indians will also happily encash some of their personal stores of Gold to purchase the cheap RE. Both these trends will bring any price correction to a screeching halt.

I will repeat what I have said many times on this blog before:

REAL ESTATE WILL NEVER CORRECT MEANINGFULLY IN RUPEE TERMS UNLESS THE RUPEE STRENGTHENS AGAINST THE USD AND GOLD.

Anonymous said...

Crisil, majority owned by Standard & Poor's, expects more credit downgrades and defaults for Indian companies in the coming months, Director Ramraj Pai told Reuters.

Bad loans at Indian banks are expected to rise to about 2.6 percent of their total assets in the year to March 2012 from 2.3 percent a year ago, ratings agency Crisil said. They have remained at the 2.3-2.4 percent levels since 2008.

A total of 43 accounts have defaulted in the June quarter, more than a third in the year to March 2011, Crisil said.

Investors have dumped bank shares on concerns of credit quality, slowing growth and lower profitability in a rising interest rate environment.

Shares of Indian lenders including No.1 State Bank of India, ICICI, Bank of India and Union Bank of India have fallen 18-22 percent so far this year, compared with a 13 percent fall in the BSE Bank index.


'THAT SINKING FEELING'

Anonymous said...

Anon @2:39

You are basing your argument based on money coming from NRIs etc. that would keep RE high if Rupee drops to 60/USD.

Just wait and watch and I think this would happen either due to Anna stir, EU problems, US problems, India debt downgrade etc.:

--A few banks in India will fail. Most likely would be private banks as GOI will bail out the nationalized banks.

--Most builders will run to cover their asses and leave projects in between.

--The prices of land would drop drastically. Inventory of flats would soar thereby putting pressure on RE prices.

--There would be "No Loans" period.

--Rupee will keep sliding.

--25% of workfore would be laid off. Salaries would decline by at least 50% in private sector. Most layoffs would be in banking, construction and RE related fields.

--India will get downgraded by S&P and GOI will not be able to print more money. If they print more, Rupee will go down further.

You also have to understand that NRIs etc. spend only a fraction on RE in India. The price rise is due to activities in India like cheap debt, high salaries, the sentiment that RE never goes down etc. Once it falls, all the investors will become sellers and in the same Rupee terms RE will fall upto 60%. Now it may take 2-3 years or less if Congress falls from power after Anna's movement.

Anonymous said...

“You also have to understand that NRIs etc. spend only a fraction on RE in India.”

Agreed, but they are not an insignificant portion of the RE growth story in India either. In South India for example, virtually every family has a member in the US, UK, Europe, Australia or Middle East. i.e. almost every family is an NRI family with significant forex savings that they can use towards RE down payments. This is not going to change anytime soon. There’s a TON OF NRI MONEY WAITING ON THE SIDELINES just waiting in eager anticipation for ANY declines in RE.

“--The prices of land would drop drastically. Inventory of flats would soar thereby putting pressure on RE prices.”

There’s massive speculation in land prices. So it’s quite possible that land prices will correct and correct hard (even in INR terms). However, I’m not so sure about flats. Flat prices are a lot more “sticky”. Also, mortgages in India are not non-recourse (unlike the US where you can walk away from the mortgage with no consequences apart from the loss of your equity). This means that Indians will make whatever sacrifices (including selling any Gold jewellry) they need to make just to keep on paying those EMIs.

In all the places where RE crashed (US, Spain, Japan, Australia), the domestic currency did not weaken substantially from before the crash and post-crash. In some cases, they actually strengthened.

Countries with strong currencies don’t get real estate bubbles. There hasn’t been a real estate bubble in Switzerland or Japan for decades now.

Anonymous said...

There’s a TON OF NRI MONEY WAITING ON THE SIDELINES

You are misinformed. NRIs are worried about their jobs and are down the toilet in their investments due to bubble bursts in US and UK. Most NRIs do not have the kind of money you are thinking. $100K is a lot of money is US and it takes 7-8 years for a person making $100K/year to save that much money if the person is living a ok life.

In all the places where RE crashed (US, Spain, Japan, Australia)

Again misinformed: RE has not crashed in Australia yet. Japan it has been crashing since early nineties.

Australia is crashing now. Brazil is doing the same. It will happen in India soon. China is showing signs of slowdown.

You have to understand that it is a worldwide phenomenon engineered by wall street and G-20 Finance ministries. They all wanted to borrow from future and use it today by following Keynsianism. Results are here now. The western countries cannot repay the debt. Same will happen to India. Massive unemployment is in the cards for India with RE falling by more than 60% in coming years. The prices that you see today are year 2025 prices.

Read the story of Japan and you'll understand everything.

Anonymous said...

According to the annual report (2010-11) of the ministry of youth affairs and sports, the population of persons below the age of 35 years in India is about 70 per cent of the total population. It is this population of young people, which constitutes, for India, a potential demographic dividend and a challenge of mega proportions if not properly addressed and harnessed.

These youth are going to go hard in Anna's protest against GOI policies on the so called false growth in India.

I hope there is no civil unrest.

polt said...

For the record, India's long term debt is rated BBB. One level above non-investment grade (i.e. junk :) .

What is worrying is that if we have a downturn, the government does not any more ammunition left to spend. Debt is at 80% of GDP, and subsidies and welfare spending are ballooning.

As far as RE goes, I think land prices will correct first. If you subtract the land component from a house price, you will see that the apartment is fairly priced. (essentially price of cement/brick + labour + a profit margin)
It is the speculative, leverage and expectation driven land prices that has driven up housing costs. If land prices correct, then newer apartments will be built at lower costs, thereby lowering prices of existing ones.

My humble attempt at land price valuation is at http://south-sea-ideas.blogspot.com/2011/07/exercise-in-valuation-of-land.html

Pawan said...

Great discussion guys.

I tend to agree with the person who says that RE prices will not be allowed to correct by the GOI in rupee terms. However, given that our fiscal deficit is already above 4% of the GDP, what can the govt. possibly do to keep RE prices high?

polt said...

@Pawan 'I tend to agree with the person who says that RE prices will not be allowed to correct by the GOI in rupee terms. '

I think the govt will try and fail. Just like the US govt is failing to raise RE prices by ZIRP and debt monetization.
"No power on earth can stop an idea whose time has come" :)

Besides, a lower rupee will cause huge inflation (due to fuel prices, imported cooking oil, etc). RBI will have push rates even higher.

shailesh said...

Property being discounted as demand drops

BANGALORE: Developers are not willing to publicly admit it, but the word on the street is that they are beginning to discount their properties in order to persuade people to buy. Some are offering freebies.

In Bangalore the discounts are said to be between 8% and 15% on listed prices. In Mumbai, where residential transaction volumes have dropped significantly, the discounts are steeper at 20-30 %.

Prashanth Sambargi, partner at real estate firm Mars Realty, said the majority of discounting ishappening in projects with ticket sizes of Rs 70 lakh to Rs 1 crore.

Farook Mahmood, CMD of Silverline Realty , said the big five developers in Bangalore are not discounting on their products . "But there is excess supply in the mid segment. So some are offering discounts to offload inventory," he said.

Century Real Estate in Bangalore is offering big discounts to those who make accelerated payments for its luxury apartment project Renata on Richmond Road. The pre-launch listed price was Rs 17,000 per sft, but buyers are said to have got it for Rs 15,000, 13 % less than the quoted offer.

Anonymous said...

Most of us started getting emails registered with some of the prominent real estate from Bangalore. This shows their desperation in tapping customer base, next step will be to discount sell.

Lots of US mortgages have their ARM reset in 2012, it is going to be bad before it turns around. Indian market too will head downward spiral. Recovery is not projected to start before 2014.

Anonymous said...

Correction in land prices is never "advertised".

It always creps up in small unknown transactions, where people bargain hard, get a great deal but keep quiet.

When transactions dry up, there are always distress sales going on under the radar of us :internet info" types - these are on the ground deals by people who have never been on internet.

These deals are going on RIGHT NOW and have been for last few months.

By the time we internet types get to hear of them, the best bargains are already over.

I expressed a (false) desire to buy a resale flat in a project - On the phone itself, I was able to beat down the price from 3800 list price to 2800 - in just 2 phone calls.

Investors stuck in non moving projects are desperate. But RE prices are not going to fall down at all - they will stay where they are (officially)

polt said...

Slightly off topic, but does anyone here think that consumer prices (in addition to asset prices) are also heavily inflated. For ex - A pair of Levis jeans retails for upwards of Rs 1200, which is the same price you would pay in a JC penney or a Sears store in the USA.
We are paying dollar prices in a rupee economy, when our average incomes (even in the much hyped IT sector) are nowhere near American levels. A product made with Indian cotton, with Indian labour retails for American prices on Indian soil!!

And still many people think these prices levels are justified.

shailesh said...

House in Mumbai slums for Rs 40 lakh

MUMBAI: The realty market is booming in Mumbai. But not in its traditional posh, suburban or newly developing pockets. It is flourishing in the teeming slums that house 60% of the city's population. The informal property industry here is easily worth several hundred crores a year. Some tenements in these areas sell for as much as Rs 15,000 per sq ft while rents for the humble hovels can soar as high as Rs 10,000 a month. It's another matter that the living conditions almost always remain sub-human.

A two-room house at the Matunga labour camp on Dharavi's 60-feet Road, for instance, can cost up to Rs 40 lakh, say local brokers. Ajay Kanchikurve purchased a 200-sq-ft tenement in the neighbourhood a few years ago for Rs 13 lakh and built a floor over it. He claims that today his "well-furnish flat" could fetch him Rs 35-40 lakh.

Anonymous said...

Hello Friends,
I am a regular reader of this blog. I am planning to buy an 2 BHK flat in a tier 2 city in south india. I am staying as a tenant and paying Rs 7500 as rent. Another flat in the same apartment is for sale. The seller is quoting Rs 23L. This apartment is about 19 years old. How much should be a fair value of this flat. I know of a formula read on this blog that a fair value is rent * 200. If we go with that, the fair value is 7500 * 200 = 15L. The flat is good with schools,colleges,parks, hospital etc nearby and is well ventilated.Since i have stayed as a tenant and found it comfortable, I am keen on buying, but not with overpaying. Is there any other formula that i can consider to arrive at a fair value

Anonymous said...

Blogger polt said...

Slightly off topic, but does anyone here think that consumer prices (in addition to asset prices) are also heavily inflated. For ex - A pair of Levis jeans retails for upwards of Rs 1200, which is the same price you would pay in a JC penney or a Sears store in the USA.
We are paying dollar prices in a rupee economy, when our average incomes (even in the much hyped IT sector) are nowhere near American levels. A product made with Indian cotton, with Indian labour retails for American prices on Indian soil!!

And still many people think these prices levels are justified.

6:51 AM

I visited India (Baroda and Anand in Gujarat, India) in February 2011. I was shocked to see that clothing prices are the same as here in the U.S.

Also, real estate is way overvalued compared to income ratios. India's economy is headed towards a big fall.

Cool Head said...

@polt and Anon at 09:15
Yes, the prices are similar perhaps even a little higher. However the salaries of many mid level and senior executives in companies have shot up in the past 3 years and now approach "western" levels. Thus we now have people getting $100,000 salaries routinely. Earlier only company MD/Director level types used to have these kinds of packages, now even company GMs/VPs have them. I am not talking about only IT or MNC companies here..I refer to Indian FMCG companies, MNC engineering and project management EPC companies that pay these to engineers and others with 20+ yrs experience. So this is the next phase of the globalization phenomenon. It does not matter where you are located, it only matters what you know and what you do.

Cool Head said...

Have all of you considered that another reason for overpriced RE is the lack of development of financial markets in India. Tomorrow if you suddenly made 50 crores, where would you invest it in India? Stocks? Too much uncertainty. Gold? Where will you buy this qty and where will you store it? The lack of a deep bond market that can absorb such monies and the lack of alternative investment avenues means the money easily flows into RE which is seen by many Indians as "solid" and "safe". They are not bothered by the Return on capital here but more about Return OF capital. Even if prices correct by say 20% in the long run these investors believe that their investment will be well protected, not the least because of rampant inflation. So this is another reason for RE prices to be so off the expected curve. Add to it the advantages of hiding unaccounted and untaxed money and the causes are there before you.

shailesh said...

Cool Head: Can you tell me what percentage of population do you think makes $100,000 income? Forget percentage, you can at most count them by simple math. Assuming there are 1000 companies that pays $100,000 to all their senior VP,GM type guys, assuming there are 100 guys, you are still talking only 100,000 households. This is a very small number of homes in overall numbers. I think this numbers are above reality.

Having said that there is large increase at middle and upper middle class numbers. As said earlier, that is definitely the cause for RE boom to start. But like anything in life, Once a boom starts, it is very difficult to stop. It's like Newton's third law.

What has happened in RE is we have gone overboard. Especially, speculators have taken this to extreme. Also the bubble is not going to pop, just slowly leak air.

skeptic's ghost said...

Yes Superleveraged speculative RE growth was builder-banker lobby's creation along fostered by the Indian (asian) mindset of hoarding (sacrifice food toys education for gold assets anticipating harder times ahead) - But there also is another factor - civic mismanagement and inequitable urbanization

A large part also has to do with dismal Civic administration, improper zoning and poor infrastructure (especially in smaller cities and towns) that has led to jobs being concentrated at select locations - Which has driven prices near these areas over the roof putting pressure on the non cool areas to hike prices as well in anticipation of growth there. This skews both demand and supply especially in Housing.

If cities tier 2, which can take burden off larger metro cities are allowed better infrastructure by liberalization especially 24x7 electricity, decent if not superior transport, communications international airports and monetary aid, these cities can come out of the wretched grip that the netas, government babus and civic authorities have on them.

Surprisingly Indian education has skipped the idea that big cities alone can have premier institutions, with many small cities leading by example.
Gujarat is probably leading by example which has managed to make tier 2 cities more attractive than capital - Tamil Nadu and Maharashtra too have achieved this. Ideally if quality of life in these less crowded small-medium cities becomes top notch (same jobs, same facilities, same attitude) there will be less rush to blighted overcrowded cities.

example - Cities like Navi Mumbai have been turned into suburban extensions of Mumbai only because of lack on international airport - Ideally New Bombay was designed to replace the need for anyone to be in Bombay for everything - that didnt happen for the reasons i mention above.
I hope sooner or later this comes true - I am optimistic.

Anonymous said...

Why are my posts getting deleted immediately after posting???!

Anonymous said...

@Anonymous bhayya,

If you write bulsit, they delete. Write real thing and honest. Then they print

shailesh said...

New policy may help reboot IT parks in Chennai

Nearly one out of every three IT parks in Chennai is lying vacant. Going by the estimate of real estate services firm Jones Lang LaSalle India, out of the total 28 million sq ft of IT park space (excluding special economic zones) available in greater Chennai, about 8.68 million sq ft is lying vacant. The virtual dead investment on these concrete structures could be in the region of Rs 2,000 crore, said Kevin William Albert, associate director of JLL India. "Many promoters have been holding on to these buildings for more than three years with the hope that some relief could come their way. Banks, which funded these projects, are facing problems of non-repayment of loans," said Kevin.

Anonymous said...

Re:

Hello Friends,
I am a regular reader of this blog. I am planning to buy an 2 BHK flat in a tier 2 city in south india. I am staying as a tenant and paying Rs 7500 as rent. Another flat in the same apartment is for sale. The seller is quoting Rs 23L. This apartment is about 19 years old. How much should be a fair value of this flat. I know of a formula read on this blog that a fair value is rent * 200. If we go with that, the fair value is 7500 * 200 = 15L. The flat is good with schools,colleges,parks, hospital etc nearby and is well ventilated.Since i have stayed as a tenant and found it comfortable, I am keen on buying, but not with overpaying. Is there any other formula that i can consider to arrive at a fair value

7:12 AM

The ratio is not a blind 200, it is different for different cities.

For Bombay anything less than 600 is a bargain. For Delhi, Kolkata, Chennai, Bangalore and Hyderabad, anything in the 300-400 range is fair value. Less than 200 is a bargain, More than 500 is overpriced.

Lots of 2BHK flats in Delhi have 7500 rent and at these rents, cost around 40-60 L based on location. 40L is excellent value for such a flat.

In remaining Tier 2 cities, range is 200 without airport, 300 with airport and anything less is a bargain.

Re: your rent of 7500 in tier 2 - you are paying too much rent. If that is the real rent, then 23 L is a bargain. But check on rents in your city.

Typically in India, regardless of tier 1/2/3, 200 is the lowest the capital to rent ratio ever goes.

Hope this helps.

shailesh said...

I guess this will never happen in India....

Buying is cheaper than renting in most U.S. cities

DingDing said...

anon who suggested 600 as an acceptable multiple for mumbai vis-a-vis rent

i.e monthly rental of 1 bhk in kandivali / malad comes up to 15k-20k, by your logic valid price would be 1 cr and above for a 1bhk let alone 2 / 3 bhk

are you nuts ?

alternatively if you are juiced up on something, pls do let me know what it is ? would'nt mind it it bit on off days!

anon who is trying to establish affordability, best way to calculate would be against your own current income.

Anonymous said...

Sab choron ki Indian mein phat rahi hai. Bubble bhi burst ho raha hai. All the builder banks and people in power mafia is hiding.

Jai hind.

Anonymous said...

http://economictimes.indiatimes.com/markets/real-estate/news-/dlf-fined-rs-630-crore-for-unfair-practices-realty-reels-under-incessant-shocks/articleshow/9629640.cms

DLF fined for unfair practices, realty reels under incessant shocks

Anonymous said...

Ding Dong, you moron, is Malad and Khandivali Bombay?

If you dont know anything, dont talk and expose your ignorance.

If you know something, post the capital to rent ratio of various areas of Bombay - that would be a meaningful post.

As such, your comments are like a Bihari Bhaiya - they shit in the open and mess up everything

- and you come and shit in this blog and mess up everything.

Patah naho kaise kaise log internet me gus ke usko bhi ghusal khana bana dete hain

Anonymous said...

Looks like a Egypt is forming in India. The corrupt people are the most worried.

DingDing said...

rofl ... stupidity of trolls has no bounds

Anonymous said...

Anon above:
what is rofl?
also, could you please elaborate what you are trying to say.

polt said...

Historically, across many countries the price-rent ratio has been around 20 times (annual rent - expenses), i.e about 240 times monthly income. In times of exuberance it has risen higher, but eventually reverts to mean. I suspect it will be roughly the same here plus or minus 10%.
600 times monthly rent (if true!) is unsustainable and should not be touched with a bargepole.

Anonymous said...

In USA it is 120-130times monthly rent.

If a house rents for $1000, its price should be 120-130K.

It is reverting to mean there and the prices reached in bubble up to 200-250x.

polt said...

Dated but prescient article -
http://www.economist.com/node/4079027

More data on the AU housing bubble that is now deflating. The comments are also interesting.
http://www.macrobusiness.com.au/2011/08/the-foolproof-investment/

Methinks it is simply a question of time before the same happens here and in China.

Anonymous said...

Australia is totally toast. They have one of the biggest bubbles in the World and have been denying it for a long time. Time is up for them and a painful 10 year slow growth is coming.

Countries cannot borrow from future and enjoy today. All countries have borrowed more than 10 times from future and now cannot borrow anymore. It is time to pay it back for the next 10 years.

The prices of RE we see in India or Australia are that of year 2025 or more. People who bought at the peak will not see their RE grow for the next 10-15 years.

shailesh said...

Indian Property Baron Faces $138 Million Penalty

In what was a first for property buyers’ rights in India, the Competition Commission of India recently ordered property firm DLF, controlled by real estate tycoon Kushal Pal Singh, to pay a fine of $138 million for delaying the completion of an upmarket residential project in Gurgaon, located in the outskirts of New Delhi. The penalty amounts to 7% of DLF’s average revenues in the past three years. Or to put it another way-it’s less than 2% of Singh’s net worth of $7.3 billion as estimated in March.

==
While news reports have suggested that the ruling against DLF will open the door for a raft of similar litigations against other developers, that may be overstating the case. As Kumar pointed out, buyers tend to benefit handsomely from the appreciation of property values from the time of booking until they take possession. Such gains easily dissuade them from taking legal recourse against real estate firms.

Anonymous said...

The reversion to mean has begun in Stock markets. It will soon come down to RE

Anonymous said...

It is happening in RE also. The RE gang doesn't portray it buy it is happening.

Sensex will average out at 13K. RE will drop by 50%. 25% layoffs. And India's debt has 80% probabiliy of getting downgraded.

Anonymous said...

Looks like we are in a "W". The second downturn has started and it will bottom out at Dow close to 7K and Sensex close to 9-10K. This recession would be really bad as Govts. cannot print there way out of this one.

Massive pain ahead. Sell your RE/Stocks now and stay in cash. cash would be king. You'll be able to buy your own house again in the next year or so for 50% less than today if you have cash.

Secondly, save your job. Major layoffs and salary reductions coming. Two sectors that should be careful: IT and Banking.

Construction industry is going to go down for the next 10 years. Too much inventory will show up soon when all investors become sellers.

Anonymous said...

Anons above - so what happened to India shining and all. What happened to super growth story of India... was all that lie? if all that news was a lie, then can we trust the current correction is not a lie?

Anonymous said...

Any economy based on too much spending (Keynsianism)is only good for a short period of time. When Governments around the world made it a habit to borrow/print and spend, you'll see what is happening in US/EU. They have been living on debt economy for a long time and chickens are coming home to roost.

Same is the India shining story. Unlike US/EU shining, India also had its party days. But it would stop as money cannot be printed and spent infinitely.

Govts. misuse Keynsianism in a way that spending is good in recession etc. and then you make up when times are good. Currently, all we do is spending.

Look at the debt figures of India. Even the salaries of GOI employees is being paid from borrowed money. India would have to go for a major austerity to avoid a collapse like EU/US. Which means less spending, salary cuts and if the RE bubble also bursts, we in India are totally screwed. We'll go back 10-15 years in growth.

GSM said...

Look at the debt figures of India. Even the salaries of GOI employees is being paid from borrowed money. India would have to go for a major austerity to avoid a collapse like EU/US. Which means less spending, salary cuts and if the RE bubble also bursts, we in India are totally screwed. We'll go back 10-15 years in growth.

This is not completely correct. The Govt debt in India is mostly owed to People of India through our savings lent out through banks so there shouldn't be a shock like EU/US. Japan has been able to sustain with more than 200% debt to GDP because it is funded internally. Plus even if India is growing at 7% the debts are not going to explode. And GOI has owns public companies which it can sell to cover debts and deficits (which they are doing).

Anonymous said...

I feel that gold will be the nemesis for the RE market, as the black/white/big/small money figures the potential in gold and almost no upside left in RE, they should start dumping RE in it's favor.

Where will they store the gold you ask ?

small money can't buy much so this is not a problem for them anyways.

black money and big money will be helped by the same bankster politician nexus who helped created the real estate bubble in buying/storing and laundering their gold (Note: Indian banks can import gold for Jewelers)

on the contrary, big/black money doesn't even have to worry about storage they can just buy allocated gold in secure swiss vaults.

Another thing is that a lot of gold can fit in a very compacted space this is what 12.5 KG of gold looks like

http://goldratefortoday.org/images/london-good-delivery-bar.jpg

So the marwari can just build a wall in his house with two or three of these nicely interspersed without anyone knowing.

with today's rate 5 such bricks can help him launder Rs. 171875000/-

Anonymous said...

heck, I won't be surprised if the flats brought by these marwari traders already have such walls!

aam aadmi said...

This is not completely correct. The Govt debt in India is mostly owed to People of India through our savings lent out through banks so there shouldn't be a shock like EU/US. Japan has been able to sustain with more than 200% debt to GDP because it is funded internally

True but if India goes bankrupt things won't be as easy as you point it out to be, in the 90's when India was on the verge of default we had to be bailed out by the IMF and World Bank, that's how liberalization started in the first place.

Secondly inflating away all the internal debt would send inflation through the roof, RBI would have to raise interest rates to 20% or so, what would happen to the growth story in that case. Overall there are too many if's and buts here, very hard to speculate.

polt said...

Besides Japan has had a current account surplus for quite a few years now.

BTW, folks interested in bubbles should read the classic 'Manias, Panics and Crashes' by Charles Kindleberger. You will see historically and eerily similar parallels with the India story in other countries.

Interestingly, a secular decline in stocks has always been followed by one in real estate. Prices in RE dont fall 20% in a few weeks, but slowly and steadily grind down.

It is too early to say for sure whether the recent fall in the Sensex is short term panic or secular. I think (and I hope I am wrong :) that we are in secular bear market and are in for a few years of low or possibly negative returns in the market.

Anonymous said...

India is different. Real estate won't crash here. Indians love real estate and won't sell. There isn't a lot of empty inventory in Indian cities anyway (unlike ghost cities in China).

Anonymous said...

Anon above:
There are a lot of fools in India like you in denial mode. You only understand the language when you see it happening.

I would say that you buy more flats if you are too optimistic and then celebrate.

Anonymous said...

Can anyone tell me what are sq ft rates in outskirts of Pune for new construction. I am looking at Hadapsar and Magarpatta area. I am looking for ready possession, not under construction rates.

Anonymous said...

anon above: construction prices across India are more or less uniform 1000-1500 psf will get you decent quality, the sky is the limit.

Rest is land price, which should be abt 300 psf for the outskirts of any city. So, you are looking at 1300-1800 psf at outskirts.

After 50% drop in markets, this will be about 900 psf. Then, half of it will be further reduced after lokpal is passed, so 450 psf. After all the black money is brought back, another 400 psf reduction so, 50 psf.

Then, you get a further discount of 50 psf since this is outskirts of Pune. No one wants to live in Poona any way, why live outside? So, you get it 4 free.

Enshoy! Soryy, I have haddd one toooo many tonight...

Anonymous said...

Countries with growing populations never have significant real estate corrections. India has an exploding population and can never really have a significant downturn. Don't believe me? Well look at what has happened historically and after 2007-08 . Countries with low birth rates and tight immigration policies all crashed (USA, UK, Spain, Japan, etc.). However India, China, Canada, Australia, Brazil, Vietnam, Egypt, Syria, Morocco, Sudan, Zambia, South Africa and Nigeria all had their housing "bubbles" continue and even explode higher than 2007-08 levels. Guess what all these latter countries have in common?: growing populations (either because of birth rates or high immigration).
Secondly, sales may go down in India but prices will never go down. Sellers are highly liquid in India (having amassed vast reserves of Gold) and have absolutely no incentive to sell at distress levels. House prices will remain permanently high in India and will always remain out of reach for those who didn't have the foresight to buy early or to invest heavily in Gold.
Sorry if this hurts. I used to be a believer in an Indian housing bubble at one point of time too. But after five years of visiting this website and seeing house prices shoot up 30% year after year after year, I've decided to call it a day and get with the program.

Anonymous said...

To anon above
You r talking as if every Indian sit on the gold chair and dine and wine using gold cutlery. All the people who have bought RE recently are in deny. It is just matter of time that property prices will start falling due to so many factors.

polt said...

Anon@1.23 - "Countries with growing populations never have significant real estate corrections. "

They do if asset prices rise much faster than long term means.


For India, this chart shows a mixed picture - http://www.nhb.org.in/Residex/Data&Graphs.php
Fast growing "IT" cities Bangalore and Hyderabad are in correction mode.

Pawan said...

@Polt, I totally agree.
Sensex rushed from less than 5000 to 21000 in just 5 years from 2003 to 2007 giving a CAGR of 40%. Since then it is in negative territory. If Sensex reaches 21000 again in 2013 then the return for the 10 year period would be about 18% which is approx the average growth we have seen in the top 30 companies in India. House prices should also have been in a bear market by now but if they are not, they soon will be.

Anonymous said...

Fine. So please explain to me what the difference between these two sets of countries are:

1. USA, UK, Spain, Japan AND

2. India, China, Canada, Australia, Brazil, Vietnam, Egypt, Syria, Morocco, Sudan, Zambia, South Africa and Nigeria

real estate in kerala said...

Sensex to go down by 500-600 points today based on global cues. This time party really seems to be getting over.

jay said...

2008 the prices didnt fall because of various bailouts followed by QEs.

there is nothing special about india, places like burma, pakistan even bangladesh continued to have bubble.

http://www.property-report.com/site/yangon-ponders-real-estate-bubble-14733

Anonymous said...

"2008 the prices didnt fall because of various bailouts followed by QEs."

The countries in the first list also had massive bailouts and QE (namely the US and UK). Japan has now had 20 years of QE without house prices recovering to even half of the peak at 1990.

So I ask again, why is it that the UK, US, Spain, etc. sank in 2008 but not third world countries? Answer: An exploding population.

Anonymous said...

"Sensex to go down by 500-600 points today based on global cues. This time party really seems to be getting over."

Epic Fail!Sensex up by more than 150 points. ASSET PRICES WILL NEVER FALL IN INDIA! NEVER.

Anonymous said...

There are hundreds of people visiting this website eager for the slightest decline in real estate prices. When prices decline, they will POUNCE to buy. The same story is repeated among millions of Indians who are waiting for any type of decline to get in (including 20 million NRIs).

So even in the unlikely event that real estate declines, there will be more than enough takers for property at such levels to buy the said real estate, enough to push it up to the same levels pre-decline or even higher.

buy property in pune said...

Woahhh
Real estate agencies are really making big milestone in business and finance field. Real estate investment is basically really big. So always look for big investment into it. But better go for expert advice before investing money. Because we need to be safe from fraud deals.

polt said...

@Anon - "Answer: An exploding population."
The American population more than tripled during the 20th century—at a growth rate of about 1.3% a year—from about 76 million in 1900 to 281 million in 2000.

See the case-schiller index. During this time, real US home prices were almost flat. India's current population growth rate is 1.4% .Just slightly more than the US average over the last century. Hardly what you could call an "exploding" number.

There are enough and more blogs on the web which explain why the correlation between population and home prices is quite weak. The simplest answer being that supply will eventually catch up with (and in many cases) overshoot demand.

Anonymous said...

"Woahhh
Real estate agencies are really making big milestone in business and finance field. Real estate investment is basically really big. So always look for big investment into it. But better go for expert advice before investing money. Because we need to be safe from fraud deals."

Are you for real or a fracking troll? Anyway, thanks for the really incisive analysis you genius prick.

Anonymous said...

"See the case-schiller index. During this time, real US home prices were almost flat."

Sorry but the US and India can't be reasonably compared. The US had a strong currency for most of the past century (granted this is changing now). India has had a chronically weak currency for the entire period of its post-independence history. Also, the US has excellent infrastructure to facilitate the expansion of its residential zones unlike India.

aam aadmi said...

Money supply in India

http://en.wikipedia.org/wiki/File:Components_of_the_money_supply_of_india_1970-2007.gif

See the parabolic rise since 2000's, even accounting for an 8% GDP growth and an 8% average inflation the rise in money supply doesn't add up.

The amount of money floating around is phenomenal, numbers of 10% inflation are probably fudged, it's much closer to 15 or 20%.

polt said...

@Anon - "Also, the US has excellent infrastructure to facilitate the expansion of its residential zones unlike India."

The US interstate system was started in the 1950s. Suburbia came after that. The index predates all of these, even the advent of the automobile.

China had decrepit infrastructure till about two decades ago. Are you saying that we will always have crowded roads and poor public transportation? I am more optimistic. Look at Delhi metro, the highways, airports that are being built. We may take a longer time, but our infrastructure will catch up too.

GSM said...

See the parabolic rise since 2000's, even accounting for an 8% GDP growth and an 8% average inflation the rise in money supply doesn't add up.

Agree, but have you thought about your computer, mobile phone or car. They have actually come down in price so we can all afford them. Without increase in money supply it wouldn't have been possible. This is how debt based monetary system is supposed to work. When the RE bubble bursts we should see house prices becoming affordable, again without a increase in money supply, there wouldn't be any incentive to increase supply of RE and make a bubble and finally when it bursts make it affordable for all.

Anonymous said...

"Agree, but have you thought about your computer, mobile phone or car. They have actually come down in price so we can all afford them. Without increase in money supply it wouldn't have been possible. This is how debt based monetary system is supposed to work. When the RE bubble bursts we should see house prices becoming affordable, again without a increase in money supply, there wouldn't be any incentive t9999o increase supply of RE and make a bubble and finally when it bursts make it affordable for all."

Holy sh*t man. Do you ever read the crap you type and wonder how shockingly little sense you make?

Anonymous said...

"China had decrepit infrastructure till about two decades ago. Are you saying that we will always have crowded roads and poor public transportation?"

Yah. That's exactly what I'm saying. I visit India every now and then and even today, i.e. in 2011, there are frequent power cuts in the METROS. I can only imagine what the situation is in the villages and 2nd tier cities. I'm not even delving into the issues of pot-hole ridden roads, poor water supply and sanitation facilities, traffic jams and endemic corruption.

GSM said...

Do you ever read the crap you type and wonder how shockingly little sense you make?

What doesn't make sense. Do you ever remember how many people had cars in 1990s or what was the price of a television or a computer or how many could afford them or how much you had to pay for a cell phone incoming call. We had high interest rate then and so very little inflation and so no expansion of money supply. If I am wrong, why didn't all of what I mentioned change with no money supply expansion then? Can you explain?

samix said...

Well the thinking that the once the RE market starts to fall the bloggers on this blog or NRI's would jump in to buy is flawed thinking.

Once a market starts to fall especially the RE market everyone waits as no one wants to catch a falling knife, so everyone waits for the price to fall as much as possible.

Another thing is that if Indian's were so RE crazy then there would have been no need for the GOI to reduce home loan interests to 6% types some years ago with crazy 15-20 years tenure, Indian's got into real estate en mass to make a quick buck, once they see that RE has been juiced well, they will move on leaving the RE market for majorly genuine demand, just my 2 cents.

Anonymous said...

With strong Lok Pak bill the RE price should get low as the primary target will be black market.

jay said...

QE is an artificial boost, so typically the hot money chases emerging markets( similar to japan QEs in 90s).

I cant believe this shitty simplistic logic about population growth leading to high real estate prices.

What about 40s, 50s 60s, 70s, 80s, why wasnt there real estate bubble then? the population growth rate was higher in the past.

Anonymous said...

Just visited Mumbai after 10 years and when you land in Mumbai and drive around all you smell is human shit (honestly) everywhere from Sahar to Gateway of India. How can these crorepatis live there? I mean dont they breathe...

aam aadmi said...

@GSM
How is the price of mobile phone coming down a function of Money supply ? Anyways if you are talking about increase in productivity, that is taken into account via GDP growth.

GSM said...

How is the price of mobile phone coming down a function of Money supply ? Anyways if you are talking about increase in productivity, that is taken into account via GDP growth.

In a fixed money supply, for any new product to be consumed in the market, there must be deflation in some other product and hence ends up in a zero sum game. Supose for any new product that enters the market, if there is a increase in money supply (through debt of course), it will stimulate demand, leading to speculative invesment (again with debt) and finally a bubble building up massive supply infrastructure. When the bubble pops, because of the huge supply built up, prices will come down to affordable levels as there would be cut thorat competition now. Once Again to emphasize, without increase in money supply because of speculative investments, it wouldn't be possible to build up supply in a short span of time and bring affordability.

aam aadmi said...

@GSM
Supose for any new product that enters the market, if there is a increase in money supply (through debt of course), it will stimulate demand, leading to speculative invesment (again with debt) and finally a bubble building up massive supply infrastructure

Oh so you're a Keynesian. Hmm...so throwing a bunch of cash is supposed to stimulate demand....right.

You forget that bubbles are by themselves inefficient, they lead to massive mis-allocation of resources and huge problems in the economy. I don't think the housing bubble has made housing more affordable in US, it's just made people poorer. Ultimately it's a country's resource base and people's productivity that decides it's wealth not money supply.

GSM said...

Oh so you're a Keynesian....
I am just trying to explain the positive aspects of our current debt based monetary system with expanding money supply compared to a fixed money supply like a Gold standard.

You forget that bubbles are by themselves inefficient, they lead to massive mis-allocation of resources and huge problems in the economy. I don't think the housing bubble has made housing more affordable in US, it's just made people poorer.

Yes bubble lead to massive misallocation, but if a bubble is followed by another then it wouldn't be a problem if natural resources are not a constraint. On popping of US housing bubble, if you notice even with increasing inflation the housing prices are coming down, if only there is another bubble following the Housing bubble creating jobs, housing would be definitely affordable wrt to inflation.

Just see how many people have negative comments wrt to infrastructure and power in India even though there are high investments going on. With a bubble in this sector, we can just solve this problem in few years as China is showing us.

polt said...

"Ultimately it's a country's resource base and people's productivity that decides it's wealth not money supply."

Truer words have not been said. The only way to become genuinely wealthy is through productivity. It will make up even for a lack of natural resources (eg Japan, singapore, etc).

As as aside, lots of historical data shows that real estate bubbles can last decades. An entire generation of people can grow up believing that RE always goes up, and then a following generation faces the opposite. We have had rising prices in real terms for over 2-3 decades now. Maybe this will continue for a while more. Who can say?

Anonymous said...

@Polt,

Or maybe this whole thing would collapse in the next 3-6 months. Who knows. Probability of falling is a lot higher than prices going up.

DingDing said...

aam admi --> "Ultimately it's a country's resource base and people's productivity that decides it's wealth not money supply"

excellent comment,

what is playing out in west is perfect example of this, it is amazing how many people constantly seem to ignore underlying fundamentals,

Everyone's is hoping someone else does the heavy lifting!

Anonymous said...

Looks like Gold bubble is bursting.

Gold is down almost $85 today. Looks like Gold speculators finally got the news that Bernanke is not doing QE3.

No QE3 means BRICs would see a lot of pain as most of the money used to come to BRICs. RE bubble would burst faster than previously thought in the absence of QE3 in all the BRIC countries as well as Aussie, Singapore etc.

DingDing said...

which ofcourse compounded further by idiots who want to do someone's else lifting, which especially evident in today's indian real estate !

but i guess that is just us indians !

DingDing said...

http://suddendebt.blogspot.com/2011/08/sudden-debt-redux-where-are-we-now.html

GSM said...

Looks like Gold bubble is bursting.

Gold is down almost $85 today. Looks like Gold speculators finally got the news that Bernanke is not doing QE3.

No QE3 means BRICs would see a lot of pain as most of the money used to come to BRICs.


Bernanke did a wrong thing by trying to sustain a RE bubble which is ensuring that another genuine one does'nt develop not causing inflation and creating jobs. Having said that the next bubble may very well be in Gold and Silver but we are by no means at the top. We are yet to see the collapse of the Euro, Implosion of Japanese internal bond bubble, dumping of American dollars as the world's reserve currency, Collapse of RE in Australia, China, Canada, Singapore which will send Gold and Silver through the roof. And for those of you who think QE3 is not going to happen, we will see. There is no way Bernanke can create a housing refinance boom with low interest rates without additonal money supply which of course will not go into RE because of high supply. Even without "QE3" officially, there is 1.8 trillion of reserves of banks created out of thin air siting idle which Bernanke can force to unleash in to the market by removing the 0.25% interest rates banks receive on them. Did we see the inflation caused by 600 Billion of QE2, we haven't seen anything yet.

Anonymous said...

Everything BB(Ben Bernanke) has done has aided the Culprits . Of course its at the expense of the many ,that was the whole idea ,past the pain to the many ,just like take the heist at the expense of the many .

I have been a big hater of BB for a long time and the whole gang of thieves who like to call the winners and losers.

Anonymous said...

I wonder what goes through Ben Bernanke’s mind as he sits in his gold plated boardroom in the majestic Marriner Eccles building in Washington DC and decides to impoverish grandmothers in order to further enrich Wall Street bankers. He just pledged to keep interest rates at zero percent for two more years. Ben is a supposedly book smart man. Does he have no guilt or shame for what he has wrought? How does he sleep at night knowing he has created bloody revolutions around the globe due to his inflationary zero interest policy? People are dying because he has decided that an elite group of Wall Street bankers who recklessly brought down the worldwide financial system in 2008 deserve to be kept alive and enriched at the expense of the many.

Anonymous said...

@GSM:

QE3 or a form of that will only happen if there is another recession. Not before the recession. And looks like the world is heading to another one. The damage would be enough from the recession that QE3 would not do any good. And if you recall from 2008, Gold went down a lot. This time also I'm thinking during a crisis, Gold may go back to $700-800 and take down RE bubbles in all the high flying economies based on debt, cheap money printed by their central banks like RBI in India.

samix said...

@GSM, greenspan did exactly the same, started one bubble after another, but the problem with this premise is that each next bubble needs to be bigger than the previous one to keep the party going, thus you will have to keep printing more and more money after every bubble.

This is unsustainable and the more bubbles you blow the bigger the pain is going to be in the end.

consider this quote
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

not to mention that if you embark on this policy the economy will always be lies and more lies never reflecting the reality.

Anonymous said...

Looks like interest rates will rise even further as NPAs are increasing and inflation is still very high. RE will fall like never before, at least 60%.

Mumbai: Reserve Bank of India (RBI) Deputy Governor Anand Sinha today said though bad loans are rising in the banking system, the central bank does not see it as a systemic risk yet.

Talking to reporters on the sidelines of Ficci-IBA summit here, he said, "We don't see any systemic risks from the current trend of rising non-performing assets. But, there could be some sectoral risks going forward."

aam aadmi said...

Gold is a bubble for sure but we're not even halfway there yet. To get an idea you must realize that Gold forms less than 5% of the entire world's investment. There are trillions of dollars in bonds and equities waiting to be funneled into PM's. Check out John Exter's inverted pyramid to know more.

This correction is a healthy sign, it means that gold will maintain it's momentum over the coming years.

Pawan said...

@aam aadmi
Gold is a bubble for sure but we're not even halfway there yet

No one can be sure of this. Gold has risen 600% in last 8-10 years. During the same period Oil is up only 2-2.5 times. May be its time to short Gold and Long Oil.

GSM said...

No one can be sure of this. Gold has risen 600% in last 8-10 years. During the same period Oil is up only 2-2.5 times. May be its time to short Gold and Long Oil.

Why compare only from "Convenient" last 10 years. Compare from 1978 when Gold was $850 and oil was at 12 dollars. Now which has increased only 2-2.5 times and which has increased more than 600%?.

aam aadmi said...

@Pawan
During the same period Oil is up only 2-2.5 times.

What are you talking about man ? Oil in 2000 was at 20$, today it is at 110$ The ratio is still there.
The reason I am so bullish on Gold is because Oil production has stayed flat for past six years in-spite of high prices. Barring a persistent deflation which the Govt will never allow Oil prices are going to head north.

Anonymous said...

Both oil and gold are pegged to the US Dollar. Typically gold to oil ratio is a factor of 10 i.e. 1 barrell of oil should be 100$ when gold is $1000. There is also a serious demand factor that plays into the price of oil and that is in periods of high economic output oil tends to be traded at a higher price.

Now we are seeing flawed economic policies worldwide which leads to people shunning currencies and buying gold (you and I and the other common man cannot buy oil and store it when we shun currencies, so we prefer to stay with gold) and this is why gold is trading at a higher price. Additionally economic output is lower now causing oil to trade lower.

In my opinion the very problems that is leading to higher gold prices has not been solved or gone away, so gold price will not go down. When these problems are solved the gold/oil ratio of 10 will be re-established. So it is too early to go short on gold, but may be a good time to go long on oil. Stay long on gold. if you missed the opportunity to buy, today was a damm good day to load the boat at $1700 - $1725. Gold price action is in tact. The correction we saw in the past feew days was an adjustment to the dramatic rally since July 4th. Now the next leg up has started for gold and we will definitely see a minimum of $2500 before the gold bull exhausts in another 3 -years.

P.S. I am not buying anymore gold, because I have allocated the recommended percentage of my assets in gold.

gOlDfInGeR

Anonymous said...

Vik, Time for a new post. Probably something on corruption and Anna movement.

Anonymous said...

Sensex is under 16K now. Probably another 3K drop in Sensex in the next few months.

It might stabilise around 12-13K. RE will fall by 30% in the next 6 months.

aam aadmi said...

Looks like the real crash will come in one or two years, not right now.

The Fed is in fire fighting mode till elections get over, they might just let the markets fall post Dec 2012.

Anonymous said...

Once JanLokPal bill come, then all price fall. Just matter of time.

Jai anna hajare


Tiwari

Anonymous said...

"Looks like the real crash will come in one or two years, not right now."

Try, like never.

The "World is Flat" globalization phenomenon is basically forcing uniform asset prices worldwide. This means that asset prices in the developing world will have to increase until they match the asset prices of the developed world. Until this happens, asset prices in the developing world will continue to be in a secular bull market. I note that Indian RE is still pretty cheap by global measures.

Also, real estate will never go down in India because Indians will never sell real estate. Too many of us have heard the proverbial story about the uncle who bought a house in 1987 for 2 lakhs which is now worth 8 crores. This kind of thinking of real estate is wired into our DNAs. If there is a decline, SALES will decline without any corresponding decline in PRICES (especially nominal prices). Sellers will simply wait for inflation to catch up and boost the nominal value of their RE investments.

I'm sorry if this hurts, but it's the truth. I suspect that many of you know it to be so too.

Anonymous said...

Anon above:

You are a fool. People in US also thought the same way like Indians and bought expensive RE. Most speculators got burnt.

If you are so optimistic, please go ahead and buy more flats. Once it goes down, be prepared to get your ass whacked by your own people who you advised to buy.

Anonymous said...

Anon at 1.59

"The "World is Flat" globalization phenomenon is basically forcing uniform asset prices worldwide. This means that asset prices in the developing world will have to increase until they match the asset prices of the developed world. Until this happens, asset prices in the developing world will continue to be in a secular bull market. I note that Indian RE is still pretty cheap by global measures"


Buddy - which school did you go to. Compared to income RE prices in trade at a huge multiple when you compare this with other nations. Your income is not going to rise 10% every year for the foreseeable future. You will be lucky if you get 5% raise every year. So your theory of RE not going down is a bunch of bull.

If you are so confident, why done you leverage on your current RE investments and buy more. I know of many people who did this in many countries and are now totally bankcrupt.


THe only way RE prices in India will go up is if GOI prints and prints with no end, of course then your RE will be worthless when you compare the Rupee conversion rate to major currencies or gold.

Anonymous said...

"THe only way RE prices in India will go up is if GOI prints and prints with no end, of course then your RE will be worthless when you compare the Rupee conversion rate to major currencies or gold."

They will have to do this to keep up with the sinking US$. The RBI will maintain the $ float no matter what. It doesn't matter whether the $ declines to the worth of a Mexican Peso. The INR will still be trading in the narrow band of INR 43-47 to the USD because the RBI will maintain it at that rate.

However, given the speed at which the Dollar is sinking, the RBI will have to print mountains of money to keep up with the Dollar. This will ensure high asset prices for decades to come especially in RE because Indians have no other place to put their savings (as the INR is not freely convertible, they cannot easily invest in overseas assets).

Pawan said...

Commentors above,
You have no idea what kind of money people are making in India today. I work in Gurgaon and I routinely see people upgrading to bigger cars. Go to a city like chandigarh and you would find more sedans on roads than hatches. I do not know what these people do but there is enough wealth in our country and people willing to pay a premium to live in their dream house. Whether you guys agree to it or not but the stock of a brilliant company like Infosys or HDFC will not charm you like a great house in a nice locality.

I think RE is going down but no more than 20% in nominal terms in the next 6 months - 12 months and anybody hoping for more than that is just day-dreaming.

Is it possible for that 1 Crore house to sell for 50L without wide spread unemployment and deep salary cuts for those who still manage to retain a job? NO WAY!

Anonymous said...

"The "World is Flat" globalization phenomenon is basically forcing uniform asset prices worldwide. This means that asset prices in the developing world will have to increase until they match the asset prices of the developed world. Until this happens, asset prices in the developing world will continue to be in a secular bull market. I note that Indian RE is still pretty cheap by global measures. "
Further to my previous post above. I just wanted to point out that WHEREVER you travel in the developing world today (e.g. India, China, Brazil, Vietnam, Egypt, Syria, Morocco, Sudan, Zambia, South Africa, Angola, Pakistan, Mongolia, Malaysia or Nigeria) you will find massive housing "bubbles" at least in the cities. Asset prices are very high in these countries reflecting partially the declining currencies of the world and upward growth trajectories of these countries. This upward growth in prices will continue until the market eliminates the arbitrage between the developing and developed world.
Canada, Australia, New Zealand and UK are other countries where the housing "bubble" has not burst in any material way because of very high rates of third world immigration. On the other hand, countries with low birth rates and low immigration rates have stable or even declining house prices (e.g. Germany, Portugal, Spain, Greece, Japan, etc.).
Show me a country with a weak currency (such as INR) and a growing population and I will show you a housing bubble.
If you want to disprove what I've written, please point out one country with a weak currency and growing population where house prices have declined in nominal terms.

Pawan said...

@Anon 10:59,

I totally agree with you on the arbitrage part - wage arbitrage. A software engineer (that I am) sitting in India, as competent as one in USA and delivering as much value will sooner or later get paid as much. As a result, he will be willing to pay as much for goods and services. I travel to US often and I can tell you Levi's jeans in India are as expensive or more expensive in India than in USA and that when most of these are made in India! Same holds true for cameras, smartphones, cars and whatever else you can find.

Now does a govt. clerk or a call centre employee deliver as much value? No. So these people will never be able to afford what the upward mobile class wants.

The only thing that can cool off RE prices is huge infra development. Manesar/Dharuhera are like 10-15 kms from Gurgaon and a good road can make that distance coverable in 10-15 minutes. If that is done, people can move to such places but that will take time. Its not happening in a year or two. Till then, supply of good properties will remain limited and prices will stay high.

polt said...

@Anon - 'Canada, Australia, New Zealand and UK are other countries where the housing "bubble" has not burst in any material way because of very high rates of third world immigration.'

The AU bubble is deflating. For a detailed analysis see
http://www.debtdeflation.com/blogs/2011/08/27/the-chopping-block/#comments

I do not buy the 'black money will hold up RE' argument. Where was the black money in 2008 when prices fell 30% or more? Secondly, rising interest rates have slowed down auto sales by almost 15% last month. It seems unlikely that folks will take loans for buying cars but use black money for buying homes. If rising rates have hit car sales, then almost certainly the impact will much more on the RE industry.

@Pawan - " I work in Gurgaon and I routinely see people upgrading to bigger cars."
Do not underestimate the power of credit. Besides I think that the "upgradation" would have slowed down. As I pointed out above, the auto industry is facing a slowdown.

Anonymous said...

@Pawan

It does not follow that a country with low income levels should necessarily have lower prices for goods. iPhones, laptops or plasma TVs will sell for more or less the same price whether in San Francisco or New Delhi. What globalization and cheap mass freight transportation has done is that it has made the world flat in terms of prices. An Indian manufacturer of jeans has no incentive to sell the jeans at a lower price in India when it can get a much higher price in the US, Singapore or Japan (the marginal cost of transporting such goods to these markets being very small). On the other hand, a Bhel Puri in India made by Indians will cost much MUCH less than a similar product you can buy in Sunnyvale or Chicago because it cannot be cheaply transported to overseas markets.

Manufactured products that do not spoil and are easy to transport and distribute will almost always approach price uniformity globally because powerful arbitrages will emerge which will force such price convergence. To take your example, if Levis jeans were available in India for Rs 400 and sold in the US for Rs 1,200 you can bet your bottom dollar that some enterprising merchant will set up an import/export company where jeans purchased here are exported to the US and sold at a 300% profit.

Anonymous said...

"The AU bubble is deflating. For a detailed analysis see "
I'm sorry if you need a "detailed analysis" to see that a bubble is deflating then the bubble is not deflating. People knew for a fact when the bubbles deflated in US, Spain and Japan. No one needed a "detailed analysis".
"I do not buy the 'black money will hold up RE' argument. "
I'm sorry but I didn't mention "black money" a single time in my post. I was talking about cheap money, junk money, monopoly money, money that keeps losing its value, like the INR.
"Secondly, rising interest rates have slowed down auto sales by almost 15% last month. It seems unlikely that folks will take loans for buying cars but use black money for buying homes."
Indians will keep buying RE over cars because cars are a depreciating asset. They can't invest overseas because the INR is not convertible. Unless you're well connected, all the money and wealth that is generated has to stay in India. And where will it go? Not into cash. Indians have wisened up to the joke currency that is the INR. Not into the casino called Dalaal street. That leaves Gold and RE as the only shows in town. Besides, everybody knows that RE prices are very "sticky" once they go up - as all the posters in this Blog will readily attest to with much vexation.
I reiterate my original question: SHOW ME ONE COUNTRY WITH A WEAK CURRENCY AND AN EXPLODING NATIVE POPULATION AND WHICH HAS HAD A SIGNIFICANT REAL ESTATE CORRECTION IN NOMINAL TERMS.

Anonymous said...

Further to my previous post, even in countries which have had a real estate bust, you will note that prices are high in the regions where there is net population growth. For example, it is indisputable that the RE bubble has burst in UK, USA and Japan.
Yet, if you look at RE prices in London, New York city or San Francisco, it's like the RE crash never happened. London prices are back to 2007-08 levels and good luck affording a studio in Manhattan, where the entry level price is around $400,000. In San Francisco, you will have to sell one of your kidneys for a downpayment on a new home.
Although real estate prices have crashed in Japan, RE prices are still high, VERY HIGH, in Tokyo (although admittedly nowhere near the 1990 peak). There is a DIRECT correlation between net population growth and RE prices. This is a matter of simple logic and common sense. Don't let the pseudo-intellectual know-nothings on this board or elsewhere tell you otherwise.

Pawan said...

It does not follow that a country with low income levels should necessarily have lower prices for goods.

Exactly! What I am saying is that people in India not earning in USD are still able to afford these items selling at the same price as USA. And may be there are enough people who can afford expensive RE as well.

@Polt - "As I pointed out above, the auto industry is facing a slowdown."

Agree. But so is stock market any may be RE market too (not publicized). Would it go lower from here in next 6 months or move higher riding another round of QE is anybody's guess!

My basic Q is whether India is temporarily slowing down for the short/medium term or are we doomed in the long-term??

If its a long term thing then all of us are doomed and if it short term then why would someone sell their RE cheap unless huge supply comes aided by huge investment in Road/Power infrastructure.

I do not know what happens in 10 years time but if I get a 15-20% correction in RE, I would happily buy.

polt said...

@anon - there is a DIRECT correlation between net population growth and RE prices.

The correlation is weak at best. I pointed out in an earlier post about how the case-schiller index shows flat growth and folks made some weak argument about infrastructure etc. If you do not like the case-schiller index, check out the herengracht index. 300 years of home prices in a fast growing economy that went from developing to developed status and had rapid population growth. Once again flat home prices. And that too in a tiny country with a fairly high population density.

The simple reason being that supply will increase if demand increases. I am surprised people overlook basic economics. We do not have a shortage of land. Even if land is short, we can build vertically up. In any case, Indias population growth rate is 1.4%. Comparable to what the US had over the last century. Hardly an 'explosive' rate of growth. And someone pointed out, how come we did not have a bubble in the decades before, when population grew at a faster rate.

The stronger correlation is between prices and income, prices and growth in money supply. If you say that incomes in India will continue to rise in double digits, then yes these expectations could have been built into current prices.

Anonymous said...

"I am surprised people overlook basic economics. We do not have a shortage of land. Even if land is short, we can build vertically up."
I had to rub my eyes when I read this. You know fully well (as has been discussed on this board time and again) that India has a shortage of ZONED land. India has insane rules and regulations to convert land from agricultural land to zoned land and that is the source of the shortage. Couple that with lack of infrastructure, corruption, a lawsuit-happy culture and the collusion between the government and the builder lobby and you have very tight supply.

"Even if land is short, we can build vertically up."

The problem is that you can't build vertically in India because of the frequent power cuts and water shortages. You can't reliably depend on elevators to take you to your flat on the 56th floor when there are power failures every other day or so.

"The simple reason being that supply will increase if demand increases."

So where is the supply? There is no doubt that there is massive demand for housing in India. There are thousands who visit this board alone in the hope of a decline (ANY decline) in prices. The same story is repeated throughout the world. There are people who are desperate to buy and have bid prices well up to the point where it is profitable to create more supply. So where is it (the supply)?

The problem is that India doesn't have the type of "the greater societal good" culture that led to the West and Japan becoming so successful. Everyone is on the look out only for themselves and their own caste. They don't give a fig about anyone else. If the government zones out land for infrastructure development, you can bet your bottom Rupee that some grievance lobby will file a lawsuit seeking a stay order on the basis of some reason or the other - witness the fiasco unfolding in Noida for instance.
As long as these structural barriers remain to expanding supply remains and the population keeps exploding like rabbits (India adds the equivalent of Australia to its population every year so don't tell me that population growth is tame), RE prices will continue to be unaffordable for the masses.

Anonymous said...

“Have all of you considered that another reason for overpriced RE is the lack of development of financial markets in India. Tomorrow if you suddenly made 50 crores, where would you invest it in India? Stocks? Too much uncertainty. Gold? Where will you buy this qty and where will you store it?”

The real problem is not the lack of development in financial markets in India. The real problem is the non-convertibility of the Indian Rupee. Globally, there are tons of solid asset classes to choose from. But Indians are not permitted to send their money overseas where it can find better investments. Where money is not permitted to go abroad bubbles will develop. This is why both China and India have real estate bubbles. Both governments do not let their citizens invest their money overseas by maintaining the non-convertibility of the Yuan and the INR respectively.

polt said...

"that India has a shortage of ZONED land"
True. But in a democracy, demographic pressures will eventually push the govt to a)either convert more farmland to residential (see Noida) or b) allow higher floor space index (again see Noida/Gurgaon or the high rises mushrooming in Bombay. A few in Bangalore too now). These are 30-40 floors today, you will see 60-70 or more in a few years.
Vested interests can only delay the inevitable and for the right price will acquiesce eventually (as the farmers did in Noida).

"So where is the supply?"
Look at rising inventory levels in virtually all cities. Bombay reportedly has 72 months of inventory.

Any argument that uses population growth or supply or black money to explain the sharp rise in prices should also explain why these factors did not cause bubbles in previous decades. Our population used to grow faster, supply of homes was lesser and black money was always present.

Plain fact of the matter is that we had a credit and expectation fuelled bubble just like the rest of the world. It helped a lot that our incomes rose at double digit rates, so maybe prices will not fall as much as some folks on this list are hoping.

As the previous poster said, the lack of well developed financial markets too helped fuel the bubble.

Anonymous said...

"True. But in a democracy, demographic pressures will eventually push the govt to a)either convert more farmland to residential (see Noida) or b) allow higher floor space index (again see Noida/Gurgaon or the high rises mushrooming in Bombay. "

You're kidding RIGHT???? India has been a "democracy" for over 60 years now and they didn't use all this time to convert farmland or to allow higher floor spaces????!!!!

The Americans built the freaking EMPIRE STATE BUILDING (circa 100 floors) in 1931! And you're telling me that India shining, the burgeoning superpower that's going to overtake the rest of the world, can't build a 50 storey apartment building in 2011 because democracy hasn't got its act together yet???!!!!

Gimme a break...Seriously...

polt said...

@Anon - "they didn't use all this time to convert farmland or to allow higher floor spaces????!!!!"

Actually they did.
Look at Gurgaon. A hamlet till the mid 90s, today has more than half a million people. All this was done in about 15 years.

Older examples of such satellite towns- Noida, Navi mumbai, Bidadi and Kengeri(near Bangalore), salt lake city in Kolkata. Chennai has a few as well.

Pawan said...

Guys, argue what you may but on the ground I do not see any softening in RE prices. I don't know if it is a bluff by dealers/speculators/builders but they are not blinking as of now. There may be oversupply or debt issues or rising interest rates, I have not seen any dent in prices so far. In fact, compared to even 3 months back, RE is quoting higher.

Anonymous said...

@Pawan,

It takes time for RE to see the price downturn. It is not like the stock market. And in India it might take even longer, as corruption is very high and a major blow will be needed for the speculators and thieves to accept reality.

Anonymous said...

"Guys, argue what you may but on the ground I do not see any softening in RE prices. I don't know if it is a bluff by dealers/speculators/builders but they are not blinking as of now. "

Speculators/Investors don't need to blink because whatever nominal decline they suffer in real estate prices is more than compensated by the rich increase in gold prices (RE investors/speculators and Indians in general have huge private gold holdings). This emboldens them even more and encourages them to bid up prices even further. THIS IS WHY SALES MAY DECLINE IN INDIA BUT PRICES WILL NEVER DECLINE.

For RE to crash in India, one of four things must happen:

1. Gold prices must collapse when measured in Rupees - this will decrease household wealth and liquidity and cause real damage to consumer confidence.

2. Rupee must increase dramatically against the Dollar (as in 1 US$=20 INR). This will price NRIs out of the market and will discourage speculation as interest rates will likely be very high in such an environment.

3. GOI must permit the free convertibility of the Rupee. If the GOI does this, RE will sink overnight because finally Indians can find global asset classes for their savings instead of just Gold or RE.

4. Interest rates must increase dramatically to (say) 20-25%, this will wipe out almost all household income on ARM mortgages and dramatically increase the pressure to sell RE as RE becomes a huge liability at that point.

The chances of any of the above 4 scenarios happening: NEXT TO ZERO.

Anonymous said...

Anna Hajare Jindabad,

All real estate, filat price come down within one month. Do not buy now. Jogeswari rate come down from 9000 to 3000.

Tiwari

Anonymous said...

@Anon1:20

There are a lot of factors which will contribute to RE fall. RE was already in bubble when Gold was less than half the price today in 2009. India will not let Rupee appreciate and keep printing to compensate for USD decline.

India is no different than US/UK/EU where prices have fallen. You will see it when it happens. If you are so confident, buy more flats in India. Your money, your choice. Btw, everyone had theories about RE being a strong in West also and they are all crying. Smart are people who waited and are buying now at 70% lower prices. Only 5% people waited in the west, rest 95% were in a rate race.

Anonymous said...

@4:12PM

Everything you wrote sounds good in theory, but here's the part I don't understand. If GOI prints tons of money to keep up with the declining USD (which I think it will), won't RE prices actually go up when measured in INR?

I mean, during Zimbabwe's hyperinflation, weren't real estate prices booming when measured in Zimbabwean currency?

1:20PM

GSM said...

2. Rupee must increase dramatically against the Dollar (as in 1 US$=20 INR). This will price NRIs out of the market and will discourage speculation as interest rates will likely be very high in such an environment.

Would you mind explaining how the interest rates will be high if Indian Rupee were to appreciate. If 1 US$ = 20 INR, there will not be any inflation as the purchasing power of our savings has gone up. So the interest rate must be acutally low.

Anonymous said...

"Would you mind explaining how the interest rates will be high if Indian Rupee were to appreciate. If 1 US$ = 20 INR, there will not be any inflation as the purchasing power of our savings has gone up. So the interest rate must be acutally low."

You are assuming that the US$ will be as strong as it is today. If the US$ has plunged by 60%, then 1US$=20 INR will still make the INR a weak currency accompanied by high inflation (which will force interest rates upwards).

Generally strong currencies are accompanied by high interest rates, this is Economics 101. By the way, it does not follow that strong currencies will be unaccompanied by inflation. Australia for example has very high interest rates and a strong currency but it also suffers from high inflation (that is in fact WHY Australia has high interest rates in the first place).

Pawan said...

@Anon

For RE to crash in India, one of four things must happen:

1. Gold prices must collapse when measured in Rupees - this will decrease household wealth and liquidity and cause real damage to consumer confidence.


Totally disagree.
No one sells gold to buy a house. A businessman may sell gold to start a business but never to buy a house. In any case, an average Indian household will not be able to realize more than 10% of the house cost by selling all their gold. Rest 90% still needs to be paid through recurring income.

2. Rupee must increase dramatically against the Dollar (as in 1 US$=20 INR). This will price NRIs out of the market and will discourage speculation as interest rates will likely be very high in such an environment.

Partially agree.
NRIs are no longer the force they once used to be. In any case GOI will not let rupee appreciate anytime soon.

3. GOI must permit the free convertibility of the Rupee. If the GOI does this, RE will sink overnight because finally Indians can find global asset classes for their savings instead of just Gold or RE.

Partially agree.
HNIs may want to buy in London, Dubai or wherever else they see value. But then this is contrary to point above. NRIs can invest in these places today so why are they coming to India then?

4. Interest rates must increase dramatically to (say) 20-25%, this will wipe out almost all household income on ARM mortgages and dramatically increase the pressure to sell RE as RE becomes a huge liability at that point.

Totally impractical thought.
But this is not going to happen in any sane environment. If it happens, I wonder if anybody will be buying RE at that time.

India Property said...

Noida, Gurgaon, Ghaziabad etc have been quite bustling thanks to assistance of real estate developers in Delhi .Scarcity of land and space in the national capital has hiked the property rates of surrounding parts of Delhi as well.

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