Sunday, September 18, 2011

Indian real estate faces cash crisis

Financial times reports

http://www.ft.com/cms/s/0/8f5eda74-e064-11e0-ba12-00144feabdc0.html#ixzz1YMpFUNdU

Indian real estate faces cash crisis

Real estate brokers display brochures for luxury apartments to passing traffic in Noida, east of New Delhi, India
The Indian real estate sector, once the realm of high-risk investments with astronomical returns, is facing a liquidity crisis in the face of escalating commodity prices, interest rates and inflation.
With the sector carrying a debt burden of about $24.6bn in the year to July 2011 – up almost seven times from $3.8bn in September 2005 – many small- and midsized Indian property groups face the risk of default. Major developers are delaying projects, discounting properties and looking to sell big assets.

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“This is one of the worst liquidity crises the sector has ever faced,” says Dipesh Sohani, an analyst at MF Global. “Investors are staying away from the sector as the risk associated with it is too high.”
DLF, the biggest developer, has been trying to raise as much as Rs100bn ($2.2bn) by selling its non-core assets, such as hotels and land. Its debt burden rose to $4.4bn on the back of a tenfold increase in its interest costs since 2008, according to Bloomberg data. DLF paid Rs25.9bn in interest in the year ending in March 2011, compared with Rs2.78bn in 2008.
“We are living in a difficult environment,” says Saurabh Chawla, executive director of finance at DLF. “We see some moderation in demand. The cost of capital and cost of mortgages is high.”
Meanwhile, other major players are having trouble completing their projects and are seeking new buyers. Orbit Corp, which operates mainly in Mumbai, has been seeking potential buyers for its unfinished building in India’s financial capital since the start of August.
Chart: Real estate debt in India
In the three months to June, an 8.7 per cent increase in annual industry revenues was accompanied by a nearly 20 per cent annual decline in profits, according to research compiled by Edelweiss Securities, a Mumbai-based brokerage firm.
In such dire times, the banks have almost stopped lending to the sector, and there are few companies willing to take a high-risk bet on high-priced development projects or buyers able to pay high mortgage rates.
“Basically, no one is lending to the sector right now because they see a risk attached to it,” says Sharan Lillaney, real estate analyst at Angel Broking. Total banking industry exposure to real estate was 3.1 per cent in July, down from 3.7 per cent in July 2009.
Meanwhile, residential demand in India’s financial capital dropped to a 30-month low in the second quarter and sales fell 11 per cent during the same period, according to real estate research company Liases Foras.
Between slumping demand and recalcitrant banks, developers find themselves in a catch 22 situation. “The builder can’t reduce prices because then they have to restructure the loan with the bank [at a higher rate],” says Mr Lillaney. “But they have to reduce prices because otherwise they can’t get any bookings.”
Many buyers are unable to secure a mortgage because record high interest rates, which India’s central bank raised to 8.25 per cent on Friday – the 12th hike in 19 months – are taking a big toll on the industry. The average loan rate to buy a house in India is 16.5 per cent, according to the Housing Development Finance Corp, India’s largest home lender by revenues, up from 10.25-11.25 per cent in December 2008.
The industry is facing strong headwinds, says Mr Sohani, including high commodity prices. “Steel and cement ... are up more than 20 per cent, [and] are hitting the companies’ margins,” he adds.
Ramesh Nair, a managing director for real estate consultancy Jones Lang LaSalle, adds that the government’s Rs3.14 per litre petrol rise would further hurt the industry.
Those higher costs, coupled with project delays, have caused private equity investment in real estate between April and August to drop by 20.2 per cent – at about $831m, down from $1.04bn during the same period last year – according to Venture Intelligence, a research firm. It all adds up to Indian property launches being down 42 per cent in June compared with the average number of launches in the past 12 months, according to Kotak Institutional Equities.

226 comments:

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Anonymous said...

Classic example of how greed works.

Just made an example myself

Suppose you see a ship in the sea filled with gold.

I am a young boy unable to swim and collect that gold.

Everyone jumps in, takes gold and swims back.

Some stay and take more and more gold

At a point when there are so many people that the ship begins to sink

The greedy will stay in the hope that ship will not sink

Everyone else abandons it.

The ship sinks. The gold is at the bottom now.

The young boy learns to swim over time and collects the gold pieces and swims ashore happy!

This story is so similar RE.
Now decide where you stand and what fate awaits you with this example.

Anonymous said...

good analogy. I wonder sometimes as to what is the human cost in chasing runaway house prices as regards health and mental stability. It is easy to overextend yourself financially because of the prevailing dogma of owning a house at all costs.

shailesh said...

When did government intervention solved problems....

Realty rates to fall with state’s new inclusive housing policy

Anonymous said...

Game Over. RIP the great Indian Real Estate Bubble

Anonymous said...

In Bangalore, after monitoring the property prices for more than two years continuously, I think I am beginning to see the signs of a decline.

A particular property by prestige has sliced 3 BHK prices by 20% in the last few weeks. It still looks high in real terms, but I expect the prices to fall, much more.

Pour yourself a drink, lean back on the couch, light a cigar, and enjoy the show. My friends, the fun has started, finally, for those of us, who wanted to put a roof above our heads.

Anonymous said...

Real estate rates for underconstruction have already started falling in goregaon, mumbai.

3 months back where the rates for UNDERCONSTRUCTION tower were at peak i.e 13K-10K psf, now same developers are qouting 10K-8K respectively. Also once you go in office for negotiation they are willing to discount by 10-15% more.

However, resale property hasnt been declined yet. As flat owners of resale property have still some sentiments that rates here are 12K, and if i sell anything below 12-11K i will be fool.

But considering fall in new construction and under construction, the owners which are planning to move in bigger apartments in tower and willing to purchase underconstruction flats, may definately lower their resale flat values.

We just need to keep close watch on resale properties now.

Anonymous said...

The real rates in goregaon,mumbai should be 8K, and I definately expect the rates in goregaon, mumbai will come down below 8k, considering so many unsold stock.

Anonymous said...

What the developers have going for them (and indeed the tight discipline they have shown so far in not reducing prices is truly awe-inspiring) is the commonly accepted mythology that "Real estate can never go down". Once that myth is shattered, there goes their ability to keep up the facade.

In the US, Spain and Dubai, when RE prices started declining the psychology turned very quickly from "Real estate can never go down" to "OHHHHH SHEEEEEEEEEEITTTT!!!".

What is important is not to rush in to buy immediately even in the face of 20-30% declines. House bubbles take a long time to inflate and take a long time to deflate too. For instance, nearly 5 years have now elapsed since the US bubble burst and PRICES ARE STILL DECLINING. Same story in Spain and Dubai. Prices are still going down, over three years after the respective bubbles burst.

Anonymous said...

Oh my God, look at this shocking article in the Economic Times titled (gasp!) "What happens if the value of your house falls".

http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/analysis/what-happens-if-the-value-of-your-house-falls/articleshow/10019631.cms

Stunned...

This in a country where we are indoctrinated since birth that real estate prices can never go down. Where Demand always exceeds Supply. Where sales may go down but prices never do. And so on and so forth.

Remember what I wrote in my above post. When the psychology turns, it will turn very, very rapidly.

Of course none of this must be shocking to the readers here. Indeed, the reason I enjoy visiting this board is because it is filled with individuals who can *THINK* for themselves, do their own research, have a firm grasp of the basics of economics and don't readily swallow the propaganda force-fed into them by the media and the government.

Anonymous said...

Oh man, this article I posted above actually makes for chilling reading:

http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/analysis/what-happens-if-the-value-of-your-house-falls/articleshow/10019631.cms

It appears that Banks may make a margin call requiring a Buyer to post more security or to make a cash payment if the value of the house goes below the outstanding loan amount. This is the case even if the buyer is not in default!

Chilling stuff... Recent buyers beware. Hope you didn't put all your savings into that downpayment.

skeptic's ghost said...

Inflation is the brainchild of printing money for deficit spending -be it Uncles Sam and Ben, Greece and ECB, McManmohan and Indias corrupt vote buying.

Everywhere in the world middle class taxpayers are suffering.

What really bums me is that people still voted it Manmohan govt even though the previous UPA I had produced enough inflation. (IDK if it was due to Left's demand for higher interests or due to repeated QE in US post Lehmann or due to the price spike by China hoarding metals and oil for Beijing Olympics)

Note that the previous NDA govt (by design or by luck) had managed to keep Indian RE prices relatively sober and interest rates relatively low- even as late as 2004 when US bubble was peaking. Same with the 13 month Vajpayee govt and the previous 3rd front govts of Deve Gowda and Gujral - which were ironically managed by the same P Chidambaram.

Anonymous said...

Been to India (Mumbai) after 5 years and was hoping for 'exciting' changes for emerging superpower. Was hoping rise in RE prices was accompanied by rise in other sectors.

I goto builder and they are super nice talkers. They talk lakhs and crores as if it's aloo-tamatar. I goto end-sellers (not investors or builders), they are more charged than builders, they seem to talk that everyone has atleast one crore change in their pockets.

Now, buyers have paid in black and white atleast 60% in first 2 years. Most of the sellers who bought decades ago or just several years ago have paid off their loans. Why would they sell at less price when they don't have too.

Also, there are many many people in Mumbai who have earnings per month of atleast 1 lac and have no other obligations. These are the people who buy and are happy.

There are people who cannot afford a shit and living in shit.. you know what... they are happy too wherever they are.

That makes me think why would RE prices decline (if not increase) ?

Anonymous said...

Neil Munshi and James Fontanella Khan!!!!!! . The names smell a rat. Are these hollywood/Bollywood/kollywood actors. One sounds like British-Indian, the other English-French- Afghani Pathan.

I've stopped believing reports from these fancy tricksters.

Pawan said...

Real estate rates for under construction have already started falling in goregaon, mumbai.

I am not excited. Under-construction property in these times is like a scam riddled company's stock which has fallen 50% and looks tempting but then after you buy it, it goes down another 50% from there.

I want to see completed properties crash. But most of those are already in the hands of end-users. A property changes several hands from pre-launch to possession finally ending up with an end-user who will rarely sell it.

polt said...

@Anon - "When the psychology turns, it will turn very, very rapidly "

True. One sign of that is the number of negative articles in the media. Over the last few years, virtually every article about RE was how prices were shooting up and quoting sundry experts on how RE is always a great investment and that prices will continue to rise at double digit rates. Now the news about RE is somewhat muted. Mostly about how EMIs are hurting, sales are slow, cash crunch for developers, etc.

In any case, as I have said before, it will be interest rates that will puncture the bubble like in the US. Buyers here may not be over leveraged, but builders certainly are and they have to repay or rollover the loans.

Once saving grace is that the job market here is still strong. A weak job market in the US converted many "prime" borrowers into "sub-prime".

samix said...

Why will prices fall ?

Imagine you are siting on a pile of Real Estate and the sentiment has turned negetive.

Though you have payed off all your loans and are now liabilty free, do you think that people will buy your house at that impossibly high price that you want to sell it at ?

In the market there are two price forces bid price and ask price.

As the sentiment turns negetive, the bid prices generally fall and bids reduce, in this case the sellers have no choice but to lower the ask price and so on and so forth.

People may have to sell the houses for many reasons, daughter mrriage, medical emergency, sons foriegn education, profit taking, loss minimising ie someone who has payed 13% interest rate for home loans has to sell quickly to minimize his loss in a falling market.

aam aadmi said...

Buyers here may not be over leveraged, but builders certainly are and they have to repay or rollover the loans

I don't know how exactly you define leverage but most of my colleagues have bought houses that is four five times their annual salary and with the hope that their jobs and increments will continue forever. That may not be the American definition of leverage but for me it counts as very high leverage.

aam aadmi said...

If Rupee keeps falling further, expect oil prices to go up once more and then things will really start falling apart.

High inflation, high interest rates and you have a party going on.

Anonymous said...

anon at 10:49: Good point. The assumption of a lot of idiots is that US EU jobs will keep coming to India. I know for a fact that there are cheaper places to outsource such as Indonesia, Malaysia and Vietnam. At some point it is simply not cheap to send work to India. Furthermore, there is no interest in moving to more value added jobs such as research since the education is so pathetic. Additionally do these people even think of other problems like water shortages etc. I know that Bangalore is going to face problems in this regard.

polt said...

@aam admi - "most of my colleagues have bought houses that is four five times their annual salary"

I could be wrong, but I thought that banks here were relatively prudent and did not lend more than 80% of the home value and more than 3 times annual income.
Where the banks were imprudent (i think) were in lending to builders based on highly inflated land values. That might come back to haunt them if land values fall steeply.

Anonymous said...

###Blogger Pawan said...

Real estate rates for under construction have already started falling in goregaon, mumbai.

I am not excited. Under-construction property in these times is like a scam riddled company's stock which has fallen 50% and looks tempting but then after you buy it, it goes down another 50% from there.

I want to see completed properties crash. But most of those are already in the hands of end-users. A property changes several hands from pre-launch to possession finally ending up with an end-user who will rarely sell it.#####

Very well said Pawan. I like the last paragraph, that explains the Indian RE market in a nutshell.

Step #1 - Investors buys the flat during booking from builders by paying minimal amount.

Step #2 - These investors than jack up rates as they wish on whatever price they find sucker tobuy in (another investor or buyer). they have 2 to 3 years time.

Step #3 - These investors than again start same cycle at another location where builder needs funds and on new projects.

My take is let all new construction stop and see the fun. Many say that will hike up demand and price. I say, prices will fall - why? because investors are not interested in completed projects.

How many investors do you know will pay atleast 1+ crores to hold on to properties?

Anonymous said...

@Anon above:

You have brilliantly captured the economics of the situation in a single blog post.

"How many investors do you know will pay atleast 1+ crores to hold on to properties?"

That is exactly right. What Pawan is missing is that prices are not set so much by demand as by the availability of cheap credit and leverage. The beauty of buying uncompleted properties is the power of leverage. A speculator can easily speculate with a small portion of the purchase price of a completed property and without incurring the very high transaction costs of purchasing and holding on to a completed unit. It is super risky to speculate with completed properties as the buyer has to come up with 100% of the sale price at the time of closing.

The lack of new projects will drive speculators and "investors" out of the market. Right now, you'd have to be a fool to invest in new projects because the risk that your down-payment will not be eventually converted into a completed unit by the builder is extremely high (as most Builders are teethering on the brink of bankruptcy). In order to assume the high risk of Builder default, investors will demand a significantly lower price for the property to compensate for the enhanced risk of builder default. This will drive DOWN (and not up) nominal property prices dramatically.

Now what will happen when the speculators and "investors" are driven out of the system? We are left with the end-user who will have to pony up 15 lakhs (at current interest rates) in interest alone PER YEAR to finance a 1 Crore mortgage. As I remarked in an earlier post: unless you work for Facebook or Google, good luck with that.

aam aadmi said...

@Anon on 9:23

A particular property by prestige has sliced 3 BHK prices by 20% in the last few weeks. It still looks high in real terms, but I expect the prices to fall, much more.

Where's that property ?

I am not looking to buy !! I mentioned this to a couple of colleagues and they want to know, guess they want to sink their money but let it be.

Pawan said...

That is exactly right. What Pawan is missing is that prices are not set so much by demand as by the availability of cheap credit and leverage.

My two points:
1. Demand is the ultimate driver. It may not be real demand but speculative demand only but demand is a must.
2. Credit is not really cheap for everyone playing this game. A substantial part of payment needs to be made in cash and the interest rate for that is 1.5-2% per month with the money coming from private moneylenders.

polt said...

The explanations above by Anon at 2.45pm seem sound, but the assumption is that the price rise is driven by speculators. Is there any hard evidence of this? I mean are there really that many people flipping properties ?

BTW, an interesting write up on how Texas avoided a bubble due to its liberal land use policies.
http://www.macrobusiness.com.au/2011/09/housing-supply-australia-look-to-texas-to-solve/

Anonymous said...

###polt said...

The explanations above by Anon at 2.45pm seem sound, but the assumption is that the price rise is driven by speculators. Is there any hard evidence of this? I mean are there really that many people flipping properties ? ####

Yes, there is hard evidence. Please visit builders and investors office. I had been to couple of them. First question they ask is "Are you gong to stay or want to buy as investment property". In one instance I asked builder what are my choice of flats in the project as most of them as sold out. Builder hands me a list of ALL flats and I see the names of buyers. I found so same names for multiple flats, at least 5 or 6 buyers buying 6 to 7 properties in same project on different floors and wings... hmm. So I think on this... visit investor, he is quoting less than builder and I wondered how come? I do the math, investor is selling the property on air (nothing build) for full amount where has invested just 20% or less!! he gets profit by doing nothing only pur 100% speculation, all he has to do is find one suckers in 3 years time (the time when builder asks for more funds).

In another instance I got offer from builder for funds, ready to pay 30% interest. He will grant allocation letter, prepare MoU, give post dated checks. Commitment atleast 40 lacs and 1 year.

Story does not end here, I visit a person who had bought 1 crore property and then invested in another property under construction - how much did he pay for that - 7 lacs. Now he claims he has 2 crore worth properties.

You have to go through people, brokers, builders, insiders, etc to believe it. Media is BULLSHIT.

All investors need is one sucker for every property. They pay less, do nothing and want more for under construction property.

Anonymous said...

Ever wonder: Why are builders under cash crunch if they have sold everything on the block, they have buyers, therefore have financial commitments. They why the crunch?

Ever wonder: Why laws and regulations are just slap on wrist for builders for breaking all possible laws. Deforestration, illegal building up floors, late delivery of promised projects - aren't builders committed to their agreements?

Unless law are strict and enforced with swift, heavy penalties and punishments I don't see any RE correction. Prices will remain stagnant but not fall significantly.

In Mumbai there are so many under construction properties that are on hold for several months because builder doesn't have funds, legal and environmental issues, etc. Looks like builders and buyers didn't do their homework beforehand.

Anonymous said...

"Prices will remain stagnant but not fall significantly."

You don't understand. Our inflation environment is 10% per year (and that's the gummint approved figure - reality is likely much higher). Even if prices "remain stagnant", that means that real prices are plunging by 10% every year. If the prices "remain stagnant" and don't "fall significantly" for just 4 years, that's an over 33% correction downwards in real terms.

In doing this calculation I didn't even bother to factor in mortgage interest, service fees, amortized transaction costs, property taxes and repairs/upkeep. If you add all this into the mix, you're easily looking at a 50%+ correction in just 4 years even if prices remain rock steady in INR terms.

The above example however illustrates the importance of saving in a currency other than INR.

Anonymous said...

Slightly off topic, but looks like our neighbour to the north is also heading towards trouble. The bubble in China is even bigger than ours. We may have empty apartments, they have newly constructed empty cities (lookup chinese ghost cities on youtube).

http://www.businessinsider.com/chanos-china-european-kind-of-numbers-2011-9

aam aadmi said...

Anon at 8:29

Good point. I ran some numbers on the NHB residex on excel and found that the Compounded annual growth rate for most of the indexes is quite low, the maximum CAGR (for 10 quarters) belongs to Chennai at 9.08% and the lowest is for Jaipur at a negative 6.08%.

Don't know what the fuss is about RE, according to these numbers if you had invested in Gold instead, you'd have made more money in the same time.

Of course you can say that not all RE traces these values but then there are always stocks that betray a falling market. I don't know how accurate these numbers are but according to them RE's absolute returns are quite low. Of course it's higher if you look at tax savings and rent expenditure, but is it worth all the pain ?

Anonymous said...

Speculators and investors in India beware. A major slowdown worse than 2008 crisis is coming. Be prepared for more than 60% price drops in RE. Be prepared for massive unemployment. And the worst part is that Govt. money printing or lowering interest rates will not help this time. India's debt is also rising very high. Pain for next 10 years and EASY COME EASY GO.

Anonymous said...

THIS IS HOW MUCH FUCKED UP INDIA IS AND ITS ADMINISTRATION::::THE PLANNING COMMISSION IDIOTS DO NOT SEE THE RE PRICES AND MASSIVE INFLATION BEFORE DECIDING ON POVERTY LINE.

http://news.yahoo.com/indian-govt-says-poverty-begins-below-50-cents-201642336.html

“India’s economic planning body has said any villager earning 50 cents a day is not poor and should not qualify for a government ration card — a figure condemned by experts on Wednesday.

Those with a daily income of 25 rupees (50 cents) in villages and 32 rupees (65 cents) in cities should be ineligible for subsidised food and other supplies, the Planning Commission told India’s Supreme Court.”

The proposed new benchmarks, which have already been approved by Prime Minister Manmohan Singh’s office, were condemned by poverty experts as unrealistic — especially with India’s soaring inflation.

“There is no way one person can feed and house himself on 32 rupees in a city for a day. This figure has no meaning for the common man,” Anupama Datta, deputy head of the National Slum Dwellers Federation, told AFP.

The Planning Commission, which says it has to set the poverty line to make optimal use of funds, filed the figures after the Supreme Court requested the updating of the cut-off point in the face of India’s near double-digit inflation.

While India boasts a burgeoning class of urban rich thanks to a fast-growing economy, hundreds of millions of people still face a lack of food, clean water and proper housing.

“A kilogramme (2.2 pounds) of rice costs 40 rupees which would last a family just one day,” said New Delhi housemaid Ambeka Muthuswami, adding that three bananas cost about 10 rupees.

India’s proposed poverty line cut-off is far below the World Bank’s figure of $1.25 a day.

Prominent Indian social activist Aruna Roy told the DNA newspaper that the level reflected “the government?s lack of empathy for the poor” and a “perspective completely divorced from reality.”

The Congress-led government has been under huge pressure to reduce its massive subsidy bill for the poor in order to reduce a gaping fiscal deficit.

Around 37 percent of India’s 1.2 billion population are currently deemed to live below the poverty line and are being given subsidised food and cooking fuel through state-owned stores.

Biraj Patnaik, adviser to an official commission on the right to food, said “when it comes to helping the poor, the government wants as few people as possible to get even the minimum benefits” to reduce its expenditure.

The final poverty line cut-off figures will be set after a national survey to be carried out in 2011-12, the commission said.

In May, the World Bank criticised India’s anti-poverty schemes, saying they were ineffective due to corruption and mismanagement.”

Anonymous said...

Has anyone seen that the difference between Hang Seng and Sensex used to be 4-5K historically. Nowdays, it is only 1-1.5K. Reason being, Sensex is still being speculated and is not trading on fundamentals. A lot of Govt. buying of stocks through their own outlets of mutual funds. How long can India keep fooling by printing and buying.

As anon above as said, now they are reducing the money for poor to reduce their deficit. Shame on people in power. They should be fair enough to consider the needs of poor. Are people in power no afraid of God????? Or money/fraud/lies rules everything now....

Anonymous said...

If Sensex doesn't fall more than 400-500 points today, it means it is gamed by special interest and money printing.

Anonymous said...

More signs that end users are staying away from RE (atleast in Mumbai). Expect the speculators to be next.

http://economictimes.indiatimes.com/markets/real-estate/news-/mumbai-property-deals-registration-continues-to-slide-down-25-in-august-at-27-month-low/articleshow/10070334.cms

Anonymous said...

For NRIs RE already down by 10% since last month. Dollar is up to INR 49 today. It was 44 and change when I was in India last month. My take is that this trend will last for a some more time. I can see dollar in the 55 range soon, especially if Greek defaults.

aam aadmi said...

Not a good sign

http://in.reuters.com/article/2011/09/22/idINIndia-59488020110922

The Reserve Bank of India (RBI) was suspected to be selling dollars in the forex market on Thursday at around 49.15 rupees to arrest steep losses in the local unit after global risk aversion prompted investors to move into safer assets like debt.

Anonymous said...

I cry for the "poor" NRI investor, who bought a 60 lakh property in 2008 which has appreciated to 75 lakhs in 3 years. He got in with 150 k USD (at USDINR=40), and today, with USDINR=50, he still has a 150k!

Forget about the fact that if he sells, he pays capital gains tax.

If he holds, rupee will depreciate further, diluting his gains. And also, the 75 lakhs might fall to 50 lakhs in the next couple of years as the CRASH IS COMING!!!

Anonymous said...

Anon above:

--I think rupee is going to slide to 55 very soon.

--If recession hits and GOI reducs interest rates, rupee will slide further and may reach 60.

--I know a lot of fools in US who call themselves highly educated and are holding good positions in major corporations but cannot see the macro economic picture due to their own greed. Most are an overpaid bunch of idiots and those jobs can easily be outsourced at fraction of a cost. A lot of them bought RE in India at peak prices and around 43/usd rate. They will not see any return on their investment. A lot of them even put money in the US bubble years by taking hom eequity loans and are now upside down in US with their house. They will soon be losing a lot in India too.

I think RE in India can fall upto 70%. The sentiment is going away and all speculators and end users are going to become sellers soon thereby dumping a lot of flats in the market, thereby putting pressure on their prices.

Btw, loan interest rates are around 15.5%. Who in the right mind would take a loan especially when jobs are at risk now and people may see job losses and reduced salries soon.

The Big Party of the last 8-10 years is finally getting over for a painful decade ahead.

Jai Hind.

Anonymous said...

During the 'Black Wednesday' events in 1992, UK raised interest rates 3% (from 12 to 15%) within a day or two to save the pound from sliding against the DMark. Imagine if the RBI has to raise rates by 1-2% here to save the rupee !

In any case, Get ready for a rough ride. This might end up making 2008 look like a minor economic blip. As the above poster said, the party is over. And harder the party, longer the hangover.

Anonymous said...

The "pre-launch" offers in Bangalore now seem like beggars, begging hard. Saw so many ads in the last few days.

I guess no one wants to be put on a rocket and be "launched" now. :-)

What is wrong with Whitefield folks? Property prices there seem to be lower than the prices 3 years ago, when I stopped looking once I had visited that s***hole in person and seen how pathetic the infrastructure was.

No buyers?

Anonymous said...

one way to market pre-launch properties - Look Ma! no bricks!!!
:-)

Anonymous said...

### Btw, loan interest rates are around 15.5%. Who in the right mind would take a loan especially when jobs are at risk now and people may see job losses and reduced salries soon. ###

Have you been to Bangalore, Mumbai and Delhi? Hiring is in full swing. Salaries upward of minimum 6 lacs is a norm.

Been to restaurants in Mumbai? I am not talking of crappy one... nice one (and expensive too). There is huge queue everyday for dinning.

Do you think Indians are surviving on credits and loans. Forget it, cash is still the dominates way of transaction.

Issue with India is people ALWAYS adapt to live with less... less water, less electricity, less food, less clothes, etc. They can save in any given situations. There are other Indians who feed on these savers. They cry foul when they get hurt and media, govt come to their rescue.

During last Ganapati festival, I see many Indians dancing, praying and roaming worry free - they are not bothered about jobs or their earnings. But somehow these same people are fed to people who want to make money at any cost.

Next one check on Navratri festival and let me know what job losses, economy downturn and inflation Indians face. I bet it is next to nothing.

Anonymous said...

anon above, you make me laugh.

Read Indian literature from the last century. many stories on how the farmer mortgaged his farm to celebrate the daughter's wedding etc.

Don't let the glitter of Ganesh Chaturthi fool you, financial troubles cannot be seen during the festivals in India.


Have a good navaratri bhai, and then, dump your property while you are still in the green. Don't tell me that I didn't tell you :-)

Anonymous said...

State of Indian Real Estate - report from Motilal Oswal - download from http://groups.google.com/group/dpstock/browse_thread/thread/e279a5137642728b#

In a nut shell - Mumbai Real Estate is FUCKED!

Anonymous said...

US $ buying rate in mumbai (22/9 - 11AM) - Rs 52. There is an acute shortage and expected to reach 55 within a week. Euro is trading at bank rate. If you have $, holdon to it

Foreign Exchange trader, Mumbai

Anonymous said...

The first guys to get taken out to the cleaners are the land speculators. This is where the speculation and the momentum trade was highest and the field where liquidity will be required the earliest and hence prices will collapse the fastest.

Watch land prices carefully. As land prices fall off a cliff, flat prices (especially for flats with large UDSs) will have a corresponding correction.

The party is over. Speculators will get slaughtered. This is not 2008. GOI can't print to bailout their developer buddies like they did in 2008-09. Inflation is now the highest in BRIC and interest rates are already way too high already. Printing money to bail out developers is not an option. If more money is printed, interest rates will go up even higher and the Rupee will plunge even faster.

RIP the Great Indian Real Estate Bubble (2004-11).

Anonymous said...

After I saw your 2004-2011 "epitaph" for Indian real estate, I remembered something very uncanny attributed to Nostradamus. That all things in nature, work in a seven year cycle. Even the human body completely regenerates itself in seven years.

uncanny?

Puneite said...

I am one of those NRI investors you are railing at - I bought my home in 09 for ~60lacs not when $ was 43 but when it was 49-50. Price is now hovering around 90lac to 1cr which I feel is complete bullshit - But I dont think prices will fall below the price of Land+construction which is again truly defined by "real unspeculative" demand and supply

Note that the key fundamentals about real estate buying is the 3 Ls -
Location, Location, Location.

Those who bought in decent neighborhoods, with good access and amenities & ready possession are not going to suffer (as much). My house is almost paid for and I am just 28 yrs old. I don't think the price will depreciate below the price I bought (around 2800 Rs psft in Baner Pune) Which was inflation adjusted price of 2005-06.
Remember that the world doesn't shut down overnight (even when there is war) pockets of demand remain.

Now prime ready possession properties will start selling like hot cakes as people who were potential buyers with savings will start seeing great deals.
In India - people who want to buy will never end, the reason being that residential land & residential amenities have been falsely made scarce by the civic government , chacha politicians and their Chamcha baboos.
At the same time the Indian mentality of hoarding and having kids before anything else makes sure that a new generation of buyers is ready and willing even before their older generation reaches their forties.

Skeptic keeps saying - prices might correct but will not collapse unless there is war or serious catastrophe.

As polt mentioned - when people buy homes, they also move out of older home, and in India you usually do not borrow more than your total asset value (liability ~=0) - its the superleveraged land speculators who will get hit first by correction.

Anonymous said...

Puneite - Do you really think that many Indians will run to buy 1+ crore property like hot cake? Are they now selling like hot cakes? What does an ordinary Indian produce to generate wealth? Plss don't say population.

Why many Indians prefer to move outskirts of city, if they could afford to stay in 1 crore ready made flats within city limits.

Can you afford to buy 1 crore property? oh yes you already have one. Can you afford another one? If NRI like you cannot afford, don't even talk about Indians in India.

Easy come easy go. Inflated RE prices will not come down so the inflation on other commodities has to catch up. Pay up one way or other.

Indians be ready for ride. Be poor... be very very poor.

Puneite said...

I didn't say that 1 crore property is hot cake - but same property will sell if its price falls to 80lac? 70lac? 60? 50? - it wont go down lower unless it was a crappy location in the first place. there is always a sweet spot for buyers.
Unlike here in US where in my city alone prices are still falling because demand is low and supply is much much higher.
In India the builders will walk away from unfinished projects when they go belly up - who will bail the investors then - it will be the sweet spot buyers (keep in mind I speak for residential housing and not for commercial or industrial property).

Indians might be poor, but they are great bargain hunters, if not urban, rural rich will start buying - Agricultural income is not taxed in India, and farmers make huge windfalls when commodities inflate (and equal losses when they fall).

Look at Sharad Pawar, Reddy bros, and other bigwig Maharashtra, Karnataka, Andhra, Gujarat, TN politicians - they have enough money to gobble up entire buildings.
So do thousands of corrupt officers and tax evading businessfolk. these guys are waiting in line too for prices to fall. If you think they will stop buying when prices correct they you are wrong.

I don't see prices fall below 2008-09 levels.
Ive been waiting for prices to fall, but who decides how much will they fall - ? Thats when true demand and supply kicks in.

The same situation is not true for China - china has overbuilt using government money (which is borrowed from its own surplus) - Last read they had 6 billion square feet of extra commercial space alone and about 3billion residential - their government has leveraged based on mad rush to meet 11% growth without any care for demand or supply.
India still has latent need for urban housing and that is not going to reverse unless every city dweller plans to quit his/her job and start a farm

Anonymous said...

"The same situation is not true for China - china has overbuilt using government money (which is borroCwed from its own surplus) - "

Maybe, but China has real wealth. All India has is inflation. Let me explain, China produces very high quality PCs, laptops, iPads, iPhones, smart phones, tablets, plasma TVs, digital cameras, home entertainment systems, household appliances and consumer goods and sells them to the rest of the World. If you go to a Walmart in the US or Canada, the shelves are stocked with Chinese products. On the other hand, the only Indian goods you will find in Western departmental stores is in the grocery or textile aisles.

India is a very low grade, third rate, 19th century manufacturing power. I would compare our export footprint to Vietnam, but that would be unfair to Vietnam as Vietnam produces far higher quality consumer goods in fields such as consumer electronics.

For a country that has the industrial profile of Ghana and structural inefficiences and infrastructure bottlenecks that lead to a very high perma-inflation rate, India should have very low house prices in real terms. But this is not what we see in practice. So something's gotta give. I agree with you that neighborhoods in good locations will hold up well (they should see price falls of only 40-50%), but the investors in all these new satellite cities are going to lose their shirts (price falls of > 60-70%).

Puneite said...

@last anon

China just manufactures those for cheap, it sells them in US/west and profits are snagged by Taiwan, Japan Korea US and EU who order these products and levies paid to the Chinese state, Chinese domestic demand is still pretty low and it is solely dependent on exports. The people who work in these factories do not get rich and create no demand.

The surpluses from this US consumerism led manufacturing is fed straight to the state owned companies and to the PRC surplus.

This surplus is again parked to buy US treasuries so that US can print and spend.

I agree that China might have some real wealth in production and supply = but they are even more thrifty society than India - they are completely dependent on Western Demand -

India has at least in some areas leapfrogged menial manufacturing and is a big producer of advanced tech exports, along with its noted presence in the service sector. Also India's bubble hasn't been fully state run like Chinese. The Chinese state has reportedly 3-4trillion $ in internal debt to local govts.
Its surplus is just 1.1 trillion
- If Chinese RE falls the write off alone would be that of India's one year GDP. Same is not the case in India

Time and again govts will keep bailing out the RE investors at expense of honest hardworking rule abiding citizens

Anonymous said...

Anon above:
India's RE bubble is also state sponsored. The lowering of interest rates and money printing combined with too much liquidity and easy loans. It is the same story all over.

Do not defend India or China or any other country. They all have to fall as the story has been the same all over and it is not sustainable. You cannot borrow from future forever. The day of reckoning is coming. It is the same story in US, now in EU, Aussie, Canada, Singapore, China, India, all of Africa, all over the world it is the same mess.

Investors are not stupit to sell equities all over and Sensex, Hangseng, Dow all dropping 4-5%. They know something that party is over. No more printing can happen now and no more bailout/stimulus.

If any of the readers are so confident about India not falling in RE, please go ahead and buy more flats. Your money and your life.

Anonymous said...

Puniete:

Your comments are biased towards RE not falling and you are just trying to come with points that RE will not fall in India but all over it will.

You'll be sad to hear that this was the same story in US also. As you say, if it comes to 70,60,50 lacs, 50 lacs is almost 50% of 90lacs.

Pune is in a mssive bubble. What you have bought is year 2025 prices. You saved by sharing apartment in your IT work and paid off your place, but you could have lived a good life too while working. Well, choice was yours to have buy place to live and you have it. Why worry it will go down or not. Just believe in yourself and I would say buy some more flats to make it really easy for you for future. DO not waste your time convincing people why RE will not fall but go for it. Buy more and get ahead of everyone in life. You are the winner.

skeptic's ghost said...

This blog has been discussing the bottom since 2006. Land prices have to actually fall for RE prices to fall. Also (Indian) Builders are crafty to cut supply - they will reduce floors or leave buildings/units unfinished/incomplete till buyers pay up (or move buyers to finished units).

Last slump in 08-09 set the pattern of RE bear market bottom -

Example - In Pune 2003-04 prices in Western suburbs were just 900INR to 1000 INR psft (gold was about 5000 Rs/10grams that time) Loans were cheap and IT crowd happily bought at least one home per family. Non IT crowd also managed but with a little hardship

vis a vis price of Gold - those properties never slid below the price in terms gold (today at 20k a tola properties are above 4000 psqft)I doubt however if the prices will fall below the price of RE in terms of Gold/other safe haven exchange. Any thoughts on this


What is everyone's sweet spot for a 1000sq ft home in a decent location?

Low Tier 2 20lac, 30lac, 40 lac?
(Pune Coimbatore, Mysore, Surat, Baroda, Indore, Nagpur, Cochin)

High Tier 2 30lac, 40 lac, 50l?
(Navi Mum Ahmedabad, Chandigarh Noida Gurgaon + prime Low Tier 2)

Low Tier 1 40lac, 50 lac, 60l?
(Bangalore Hyderabad Chennai Kolkatta + prime high Tier 2)

High Tier 1 Metro 60, 70, 80 lac?
(Mumbai NCR + prime Low Tier 1)

Are my prices realistic - or too low or too high ? Do you guys think that property will fall below the price of 4-5 year salary of 20 lakh ???

Also please explain How does one determine the peak prices quoted in order to calculate the correction %age if those peak prices were never bought by end users and were mere numbers floated by speculators?

Finally there are still many questions

If Gold/commodities crash- then what? If Rupee falls to 55 to USD then what? What is something that is beyond our control? What do you think can the government do to rein in prices in steps that can be implemented. Can we do something to increase transparency in RE using the internet?

Anonymous said...

@above:
Rupee will fall to 55 or more as reality is coming to ground.

Gold is in a bubble itself and I would not compare RE prices to Gold in India at least.

GOI will not do anything other than printing money or lowering rates. They have no other tool. They are done with both of them and are now worried about the looming deficit. GOI definitely doesn't want to end up like Greece.

Once RE falls back to 2004-5 prices, it would be affordable.

US RE is already below 2000 levels with around 70% correction in many areas.

DId anyone think Sensex could go down by 704 points today? Well, it happened. When it goes down, it just free falls.

aam aadmi said...

It's difficult to predict whether RE will correct or not though the chances are high at the moment.

I can tell you one thing for sure though, Rs 40 petrol is not coming back. And energy runs the world, India wasted precious resources on building highways which no one will use within the next ten years, even if RE doesn't correct as a whole, RE which resembles the suburbs of US will find no takers with 150 or 200$ oil.

Anonymous said...

Where are the elite in your country "invested"? You need to be in the same asset classes.

Elites have all power (political, economic, social - thru propoganda/media) and will do everything to bail themselves out i.e. preserve their wealth and choice of assets everyone else be damned.

That is the lesson of history.

Pawan said...

Where are the elite in your country "invested"? You need to be in the same asset classes.

You are bang on!

The truly elite however would keep a good chunk of their money outside India so they could flee when trouble comes. How do I do that?

If you have one million dollars to invest then US/Canada will give green card to your whole family. The truly elite can afford that, not us!

Anonymous said...

MUMBAI: Property registration in India's biggest real estate market Mumbai continued its slide in August and touched a twenty-seven month low. This drops comes in the backdrop of rising interest rates and real estate prices which hasn't seen any significant correction despite the slump.

In August, property registration offices in the city declined for the twelfth successive month to 4,611 deals, down 25% from a year ago, said brokerage Prabhdas Lilladher in a report.


http://articles.economictimes.indiatimes.com/2011-09-21/news/30184670_1_property-registration-property-prices-realty-broker

Anonymous said...

Rupee Rate 23/09. 11AM

53.25 expected to reach 55 by end of this month

Euro : same as bank rate

Anonymous said...

That is the buying rate. The actual right now is $49.50.

It can even go to 60 if RBI startes reducing interest rates.

The party is over.

Anonymous said...

Looks like Gold is also going back to $600 level. It goes down $50 everyday now.

Anonymous said...

Same with Silver.

These banksters and speculators have created a bubble everywhere. Wtf. There is not even one sane investment left. Cash is King and that too in USD.

With Rupee declining, petrol is going to be expensive in India causing more inflation. More pain.

Anonymous said...

"With Rupee declining, petrol is going to be expensive in India causing more inflation"

Right on point.

If the govt maintains the current price for political reasons, the other areas will be affected, eitherway expect 15% inflation leading to street level riots

Anonymous said...

This sounds a lot like 2008, but in 2008, RE prices never real came down in the developing world (including India). Sales went down briefly but prices never did. In fact after 2009, prices took off another 100% until now 2011.

What is there to suggest that we don't have a repeat of 2008 (decreasing sales without a concomitant decrease in prices?)

This is a question I can't find a satisfactory answer to.

Also if INR goes to 60, then doesn't that actually act as a positive for RE because people would want to hold on to hard assets like RE?

Anonymous said...

@above:
If Rupee goes to 60 it will be accompanied by high inflation and a lot of job losses. Moreover, most speculators are within India who don't care what rupee trades for. With losses all over, speculators will become sellers. More inventory and lower the prices. One other thing that will happen soon is loans will become impossible.

This time it would be worse than 2008. Let's hope that this weekend Greece doesn't default. If it does, it will take down a major bank in EU and negative impact on US.

Anonymous said...

To anon above
U r absolutely right. In India RE prices will never go down, it doesn't matter what happens in the rest of the world as India is self reliant and isolated from rest of the world :) We don't give damn to rest of the world.
People are still demanding dowry and enjoying it too. We r different.

Anonymous said...

No matter how much you hate the USA, in times of crisis, USA and the US Dollar is still the King and in good times USA can print like hell.

Euro is going bust, China and India cannot make up for the slow growth in the USA and Euro. The rich in China want to migrate to the west because of the freedom. In China you really cannot own anything, because anytime the Govt can take it away. Indians need to pay an arm and a leg to get anything done due to serious graft and the Indian Mafia. Arabs men cannot see double and the women are still in veils. Japan is done with. Africa kills; S. America - well where is that?

Get ready for 60 rs to the USD as soon as Greece goes under next week. This will be followed by major pain/exodus for EU. Petrol will feel like when crude was $125 per barrel. RBI will hike rates even more and we will be back in the 80's

GSM said...

This time it would be worse than 2008. Let's hope that this weekend Greece doesn't default. If it does, it will take down a major bank in EU and negative impact on US.

And if Greece doesn't default, we will all have to pay for bailing out the banks that recklessly lent Greece through inflation. Didn't we see the inflation caused for bailing out US banks in 2008

Anonymous said...

In light of recent events, when do you guys think things will come to a head with respect as far as Indian RE is concerned?

i.e. how long will it take for the flippers, Developers and "investors" to realize that the game is up?

Anonymous said...

Cheerleaders predicting the RE prices to go up 15%-20%. Some even 30-50%.
Their logic is that input cost has gone up. So, price should go up even higher. According to them there is plenty of demand.

http://www.thehindu.com/business/article2461872.ece

Pawan said...

Anon above: read the following link http://spectruminvestors.files.wordpress.com/2011/09/gmo-between-errors-of-optimism-and-pessimism-real-estate.pdf

My suggestion is, pick a price target where you can afford to buy and would want to buy rather than wait till the prices drop to absolute minimum.

Anonymous said...

Those who are wondering the high cost of real estate, please take a moment and read the following report

http://timesofindia.indiatimes.com/business/india-business/Not-worried-yet-over-capital-flows-Pranab-Mukherjee/articleshow/10103825.cms

It is worthwhile to note that most foreign investors are NRI's fooled by India Growth stories and have now realised that they were taken gor a ride by high power advertisements by GOI

polt said...

'My suggestion is, pick a price target where you can afford to buy and would want to buy rather than wait till the prices drop to absolute minimum.'

Good suggestion. No one can time the market. But you would also do well to check out price/rent ratios. Around 20 in our cities is a fair deal. Some folks on this blog say that 30+ is also par for the course, but I disagree. At a price/rent ratio of 30, you are definitely better off renting.

Our bubble was driven by credit and sentiment (expectations of high wage growth). Credit has become expensive and the fall in the rupee indicates flows have reversed. So keep an eye out for the other driver - sentiment - which can easily reverse if layoffs start.

Anonymous said...

SENSEX is down 23% from its peak, and rupee is devalued by 15% since this year, so does this mean that RE prices should be atleast 20% lower compated to last year.

Auy bright financial gurus out there who can show me a correlation between SENSEX, INR and RE prices.

Both with low Sensex and higher INR means FDIs are running at a loss. SO to ecoup their losses FDI's and NRIs could be selling RE instead of buying.

I will buy RE when Sensex goes to 12.5K and INR 60 which will be the early part of next year and reflect another 20% drop in RE

Anonymous said...

real estate prices are directly related to black economy. Even if sensex drops to 8k and INRs reach 60 for dollar, i doubt the price fall would be 10%. This is unaffordable by most but we must accept reality. So, what is behind this .

Anonymous said...

real estate prices are directly related to black economy. Even if sensex drops to 8k and INRs reach 60 for dollar, i doubt the price fall would be 10%. This is unaffordable by most but we must accept reality. So, what is behind this .

Anonymous said...

Guys,

The situation at 2008 is very different from now.

1. In 2008, Interest rate was less, and govt was maintaining that global crisis wont affect India and Inflation was not a problem then.

2. Builders who made a killing from previous years (2005-2008) preferred to wait rather than decrease prices in 2008 slump. In my opinion there was never a correction in 2008, but sales slightly reduced. Now they can do same again? I doubt

3. Rupee losing value is something which is happening newly which was not there in 2008.

4. People who already bought at high prices will maintain RE will not fall. But law of nature will take over. ready for a fall.

Anonymous said...

One of the best thing I love about America is rule of law. If I purchase any residential or commercial property, my ownership is fully protected. This is a nation of laws and not men. This is why so many foreigners invest in USA, stability and asset protection.

ShashankRao said...

In the year 2005 , property rate in my area were 4000 per sq ft.Today the rate is ridiculously 10000 per-sqft.
US dollar rate in 2005 was 45 rupee. If I do the maths it comes out to US $88888.8888888......

This amount is my budget in the past, present and future.

I see rupee hitting 60 rupees in the near future. If that is the case I would like to see property rate to be approx 5333 psqft. More than 45% drop required.. I am hoping to see my dream comes true very soon.

Anonymous said...

Mr. Rao,
Your wish has been granted. I'm soon getting Rupee to be between 55-60 range in the next month or so and upto 65 by end of the year.

Enjoy!

Anonymous said...

For all the NRIs out there, the dollar is going to be very strong for the next one year, which means more rupees to buy your property in INdia. My prediction is INR 55 by March 2012 and 60 by dec 2012.

Sell or short gold now, going to $1200

samix said...

Anon above, I will save this $1200 post of yours

Anonymous said...

Stagflation is the trend now. Watch out the monthly income levels.

Anonymous said...

Real estate prices to go HIGHER because of rise in interest rates!:

http://www.business-standard.com/india/news/developers-predict-further-slump-in-realty-sector/449501/

Heads you lose. Tails I win.

Anonymous said...

Here is a hypocritical article published in DNA
Housing prices may come down by 15%: Experts
http://profit.ndtv.com/news/show/housing-prices-may-come-down-by-15-experts-179574?pfrom=home-business

A commodity price increased by 600% in 5 years, but now decreased by 15% from last trade!!!!!


If this news item cheers you, please don't read further


Black money has been playing a havoc on honest Indians and unless and until this menace is stopped, we remain as most despicable people

People say that we are a young democracy but 10,000 years old civilization.So, during 10,000 years, we condoned exploitation , corruption and nepotism.

aam aadmi said...

Even if Gold goes lower, in terms of INR the downside is limited due to depreciation of currency, the same cannot be said of RE, since it's not an imported item and is a function of the job market and sentiments.

Anonymous said...

SENSEX below 16k today again. Tough times are ahead. Since the volatility is quite a bit more compared to NYSE, I will not be surprised if we hit 10k levels in a few months.

Nothing is a good investment right now. Gold has already started falling, stocks will take a HUGE beating if US enters second recession. And real estate? Man, only crazy people are buying real estate right now.

If I keep my cash in an FD, I can make about 10% (pre tax today). Can anyone advise a better but safe investment? I want to be ready with my money when the housing bubble finally bursts in a few months.

samix said...

I just love it when people start writing Gold Obituaries.

Pawan said...

I just love it when people start writing Gold Obituaries.

So you think everyone will make money in Gold, whatever be their buying price?

GSM said...

If I keep my cash in an FD, I can make about 10% (pre tax today). Can anyone advise a better but safe investment? I want to be ready with my money when the housing bubble finally bursts in a few months.

Don't look at today. In 2008 during the height of liquidity crisis FD was 12% / year. But when interest rates went down and the printing presses started, the returns are nothing compared to inflation. And what would you do if the housing didn't burst and on the contrary rupee underwent a massive devaluation and you are unable to exit your FD?

samix said...

So you think everyone will make money in Gold, whatever be their buying price?

No, Gold is not to speculate or to make obscene amounts of money, rather it is for wealth protection when all the paper currecies burn and hyperinflate.

Do you feel that the US dollar will remain in existance for ever ?

When you hold gold you hold a asset with no counter party risk, that automatically re-evalutes when a system fails, you have to take your old dollars and convert them into rew dollars in the event of a dollar system failure, but you wont have to move the gold you have, it will be re-evaluated automatically by the markets and redenominated in the new system.

Pawan said...

@Samix
When you hold gold you hold a asset with no counter party risk, that automatically re-evalutes when a system fails.

This is true of delivery based stocks and any other physical asset too including RE.

Who is evaluating gold today and on what parameters? The chances of it being valued more by the same 'system' is same as for RE and stocks.

I am not saying Gold is bad or it won't zoom higher. I don't know really. But I am not in that camp which says Gold will sure shot make money whatever may happen to the world. That money may have already been made.

For a contra view see:
http://www.moneycontrol.com/news/fii-view/gold-could-fall-to-361100-says-marc-faber_590567.html#toptag

Anonymous said...

Samix -

I posted Gold to $1200 yesterday. I am not claiming the death of gold or writing an obituary. Gold is still considered as "storage of value" when it comes to currencies. However gold is valued in USD and I expect the USD to rally even further compared to major currencies and this rally could last for about 1 year. So this will automatically bring down golds price in terms of USD. However in the long run USD is screwed, so we could see a rally back to 1700or higher by 12/2012.

This is not a trade to be made to secure a killing, however if you want to diversify your portfolio to gold, which you must have atleast 5%, and are patient, then there is a good entry point coming up.

Just my 2 cents.



gOldfInGeR

samix said...

This is true of delivery based stocks and any other physical asset too including RE.

yes, with respect to RE the ticket size is too large.

You cannot buy or liquidate parts of real estate, like if you are facing a financial crunch you cannot sell off a part of your RE and be done with it.

For a common man who works from 9 to 5 who does not have the capacity to understand these heavily rigged stock markets and indeed does not have so much money at hand to buy a house, it would serve him well to just go and buy some grams of gold regularly and just forget about them.

But I am not in that camp which says Gold will sure shot make money whatever may happen to the world. That money may have already been made.

Again the point is not to make a lot of money, rather it is wealth preservation, if you are able to also make some money out of it, then that's bonus.

I would rather leave my kids gold then stocks, bonds or other paper instruments that can be devalued, defaulted and made worthless. Even if gold looses all the value and goes back to $200 per ounce. I can load my wife and sister with that gold, do you see the perks (wink)

samix said...

This is not a trade to be made to secure a killing, however if you want to diversify your portfolio to gold, which you must have atleast 5%, and are patient, then there is a good entry point coming up.

I agree, the gold market today is not meant for trading, someone who trades the gold market is sure to loose a lot of money, diversification is what even I am hinting at, I do not say that plough all your money into gold rather a part of it, as a sort of insurance and hedge against(not inflation) but systemic default and crash of the US dollar system

polt said...

BTW, does anyone see the sensex at around 8800 (like in 2008) in the near future ?

aam aadmi said...

@Polt

I do. I believe it can go even lower, I think this time markets will play out like Nikkei in 80's or Dow Jones in 1929. Markets will crash, people will think it's a repeat of 08 and pump a lot of money in, but it will not recover, at least for eight-nine years and then you will see widespread panic and depression.

I got this video from zerohedge

http://www.youtube.com/watch?feature=player_embedded&v=aC19fEqR5bA

A Trader speaking on BBC. Watch the reaction of the hosts.

aam aadmi said...

Oh and remember that on pure inflation terms, a crash down to 8800 levels means the bottom is almost 30% lower compared in 2008 rupees.

Pawan said...

BTW, does anyone see the sensex at around 8800 (like in 2008) in the near future ?

I don't. There is no official info I can find about Sensex earning but it is available for Nifty. Nifty at today's closing is at PE of approx 17.5 which means the yields are 100/17.5 or 5.7%. This is equivalent to an FD/bond paying 8% if you are in 30% tax bracket.

A long term FD - 3 years or more - is giving you this return only.

So why should you buy Nifty then? Because Nifty earning will grow with time while the FD you make today will give you the same yield for the next 10 years.

As you can see there are assumptions here. FD rates will not rise. Nifty earning will keep going up. If any of these two assumptions are changed then we can reach a very different conclusion.

So from a 10 year horizon, stocks are cheap but if you could buy at 14000 or 12000 its even better.

Anonymous said...

Pawan above:

Why is yield 100/Price to Earnings?

I always thought that you simply compare P/E to historical averages and make a call on values. Yield is always dividend yield.

Dividends may be taxable and stock gains are consider capital gains. So, I was wondering what to make of your comparison?

Jimmy

Anonymous said...

"BTW, does anyone see the sensex at around 8800 (like in 2008) in the near future ?"

Not a chance. Indians love stocks and real estate (anything but Rupees). Rupee is declining in value by 10% a year and no one wants to hold Rupees (even with high interest rates). By now everyone knows that 8800 is the market bottom (inflation adjusted, the market bottom right now would be around 12,000). If the market approaches those levels, I will buy stocks HAND OVER FIST because I know with 100% certainty that eventually the stocks will go up, either by actual growth or through government pumping and priming, Rupee devaluation or inflation.

I WILL NEVER LOSE AN OPPORTUNITY LIKE 2008 AGAIN. I'm sure there are many people here and around the country who feel exactly the same way. As someone remarked above, you have to invest in the same asset classes as the elites in your country invest in. All the business elite that I know in India have deep positions in stocks.

So stocks can never really go down (on a long term basis) especially when measured in Indian Rupees.

skeptic's ghost said...

The difference between Indian bubble and the Japanese, US and Southern Europe/Irish (and now China) real estate bubble is that there was huge oversupply in these countries but not in India.
In India the builders have over committed but not over-executed the construction of these homes.
(there could be over supply in some pockets but the buyers/potential buyers are still large)

NOTE- this is not true for commercial RE - only residential Commercial is as crazily overbuilt in India as in China

So when bubble pops/deflates, unless there is mass job loss and repossessions, there is little scope of supply outstripping demand.

In India thanks to the baby boom from 1955 to 2011 (where 200 million people are added every decade) land will always be dear.

Hence those who bought properties like a plot, bungalow or row house have less to worry about value of their holding declining to worthlessness. Good location apartments too hold value for decades. I cant say the same about undeveloped suburbs and newly created zones though.

I see prices going no lower than end 2008-early 2009 levels.
Bargain hunters will start getting good value because value (in Housing) is associated with location, amenities and affordability.

The question now is that will banks be able to lend in such market for honest salaried class to easily buy a decent accommodation? any thoughts on the cash crunch in home lending side for Indian banks?

Only a catastrophe or disaster or war will bring down prices drastically other wise correction will only be 20-30% in INR terms - and negligible in safe asset terms.

ShashankRao said...

I said it before and I would like to repeat here again.. Stock market ups/downs, Gold ups/downs are CONTROLLED by big funds companies like Goldman, Buffets, Soros etc.
-I would not believe what they say in the Media. Their main job is make money. They are not up there to do charity for you.
-I will remember that Dow or BSE indices are nothing but numeric values controlled by big people and I am not of of them.
-I will not trust Media as well as IMF when they talk about a fix.
-I will not follow investment plans or patterns suggested by media.
-I would not buy Gold rather I will try to buy fields/farms lands.
-I will not believe young fund manager sent by their Masters to 'advice' people.

-I will think that selling stocks or any asset is not a defeat but stategica retreat.
-If I had property in cities I would have sold my property and stayed in the rented apartment for atleast a year.
- I will keep in mind that the amount I see in my bank account is nothing but just a number, and not an asset or hard currency.
- I will keep in mind that my bank can be shut down when my country defaults.
- I will be asked to leave because my employer has no money to pay my salary because it has not received money from the client.

-I know there is nothing like Luck factor but Time factor. If you able to gauge the time and act accordingly then you are the King.



-last but not least.. If you are in IT and are you are holding Managerial post then you will be laid off in the cost cutting situations.


Take all this with pinch of salt :)

Anonymous said...

Shashank Rao

Sounds like you are readig a version oh the Nicean Creed...

Anonymous said...

ShashankRao

Sounds like you are reading a capital market version of the Nicene Creed...

Pawan said...

I always thought that you simply compare P/E to historical averages and make a call on values. Yield is always dividend yield.

A business you buy for 100 Rs earns Rs 5 then PE is 100/5 = 20 and earning is 100/20 = 5.
Yield may not be the best term to use here. May be I should have said earnings.
Point is, if this business returns you this s 5 in dividend then that is your yield. The book-case scenario.
However, most businesses will reinvest Rs 4 in business and give Re 1 in dividend. Still, you have earned 5Rs and your yield/earning is 5%.
Historical PE is a good measure but the correct way is to compare against the long-term bond. If I want to put money for 10 years then I can buy an RBI 10 year bond at 8% yield or stock markets at the same yield today.
If FD/Bond rates for 10 years go to 15%, why would you buy stocks even at PE 10?

polt said...

@skeptic ghost -"there was huge oversupply in these countries but not in India. "

Just the number of homes does not constitute an oversupply. Price also affects the equation. At current prices, I think the residential market is oversupplied. If prices fall, then yes the inventory could clear pretty fast.

Anonymous said...

Real estate valuations fall to new lows in Mumbai; Alok Realtors may sell Lower Parel property at a loss

http://economictimes.indiatimes.com/markets/real-estate/news-/real-estate-valuations-fall-to-new-lows-in-mumbai-alok-realtors-may-sell-lower-parel-property-at-a-loss/articleshow/10134366.cms

Anonymous said...

Premium realty prices may drop 10-15%

http://www.dnaindia.com/money/report_premium-realty-prices-may-drop-10-15pct_1591989

Pawan said...

Premium realty prices may drop 10-15%

Price-to-rent would still remain 30+ and at that time Sensex would be available at 12-15 PE so stocks would still be more valuable.

RE needs to correct 50% to get to current Sensex valuations.

miami beach apartments said...

This information has helped me a lot to gain more knowledge regarding crises that the real estate facing and the measures to avoid it.

Anonymous said...

@Pawan - "RE needs to correct 50% to get to current Sensex valuations."

Or rents (earnings) can go up. Which is not very likely with the looming slowdown. So unless our country is somehow exempt from economic laws, expect RE prices to fall.

Anonymous said...

Diwali is approaching and potential buyers are scouring the market. In anticipation of higher demand, builders in Andheri-Goregaon-Malad- borivali belt have collectively increased the price of the ready inventory by 10%. Further increases expected based on demand.

(Outcome of meeting held by builders agents in hotel ' The Retreat' (Malad w)on Sept 17, 2011)


Speculator buyers have already started paying the upped price and these guys have been able to unload some inventory.

We have to just wait and see how long the builder mafia can hold on the price, if the anticipated demand doesn't materialise

Anonymous said...

### Anonymous said...

Diwali is approaching and potential buyers are scouring the market. In anticipation of higher demand, builders in Andheri-Goregaon-Malad- borivali belt have collectively increased the price of the ready inventory by 10%. Further increases expected based on demand.

(Outcome of meeting held by builders agents in hotel ' The Retreat' (Malad w)on Sept 17, 2011)


Speculator buyers have already started paying the upped price and these guys have been able to unload some inventory.

We have to just wait and see how long the builder mafia can hold on the price, if the anticipated demand doesn't materialise####

Interesting sentence: "builders in Andheri-Goregaon-Malad- borivali belt have collectively increased the price of the ready inventory by 10%."

Keyword: Collectively.

Another interesting sentence: 'Speculator buyers have already started paying the upped price and these guys have been able to unload some inventory.'

Keyword: Speculator buyers.

So, builders are grouped and are hiking rates, artifical demand. What are buyers doing... playing to the tunes of builder I guess.

Speculator buyers - Ofcourse, who else has buying power?

Another complete thought: Is there any RTI activist / anna Hazzare activist / Ghandhian that is questioning the difference between stamp duty / registration RE price vs market price - isn't this manipulation / theft / corruption.

AAM ADMI said...

@Anonymous 11:17 AM

5:50 black:white is norm in Mumbai as far as propery is concerned. Fighting against is beyond Anna Hazare's scope as Aam Admi is equally involved in this. If govt enacts a legislation to curb this practice, our honorable courts will kill it in its infancy. 'Paisa' rules supreme in this world. Govt clerk/peon and high cout judge respect 'Paisa' equally and both need it to survive. To feed them builder,seller, buyer have to generate 'Paisa'


Anna and his likes may male hullabaloo, but at the end of the day they too get tired and let it go

jay said...

I think the whole discussion about black money should be dropped from the forum.

If we are talking about economic reality, income , fundamentals. this whole argument about if only government confiscates black money real estate would drop means the fundamentals as they exist now support the prices. do they are don't they?

skeptic's ghost said...

@Polt - You say there is oversupply at the given price - but that also depends on how many of those numbers are actually fully constructed ready possession properties. Many a times the inventory numbers of builders are fudged with anywhere from 0% complete to 80% complete homes get added to "ready to sell" inventory without any guarantee that those will be completed. Do you really trust the inventory numbers thrown around by realtors?
I doubt that the government or markets or auditors even care if the balance sheets of these builders are clean

From experience I know that In most good locations builders manage to sell of ready houses to insiders (friends, relatives, local politicians and their cronies, local baboos and their cronies)

skeptic's ghost said...

Also Gold Today is at 1650 down from 1900 a month back - I said in the past that its price is being manipulated by Soros, GSachs, Hedge funders etc. Rupee still didn't fall below 50 INR to USD.

I am going to eat my own words about RE prices wrt gold because it turns out Gold is also being subject to the same speculation.
Historically Gold has been a hedge against sudden changes and socio-politico-economic events - example - World War, Soviet union collapse, currency devaluation and hyperinflation. With no possibility of any future game changing events like war, I think Gold's safe havenness is massively undermined.
Nothing makes sense!

- nothing is a safer asset than a gun perhaps (which you can't buy in India)

Anonymous said...

Skeptic Ghost

Soros sold his gold position this summer when gold was $1500/oz.

Dont just shoot from the hip. Soros missed the ride up to $1900.

ShashankRao said...

@Anon 4.43

As I mentioned in my earlier comment, not to believe what Soros or anyone is said in the Media.

People would have believed him and off load their Gold stock. The person who might have bought the Gold would be nobody but Soros. He and his gang took the Gold price to 1900. Now they are slowly selling the Gold making good profit.
DO NOT believe what big investor says and published in the Media..
be it Warren Buffet investing in Goldman Sachs or Bank Of America.

I would say do exactly what they say :)

ShashankRao said...

I meant do exactly opposite of what they say :)

Anonymous said...

SO ShashankRao

Would you go short on Berhshire Hathaway now that Buffett is pumping all his money in to buyback Berkshire A class shares. People think that Mr. Buffett is doing this because he thinks that S&P is cheap now and this this will be his exit strategy to get rid of all the excess cash that he is sitting on.

ShashankRao said...

@ Anon 5.42

"Buffett is doing this because he thinks that S&P is cheap now and this this will be his exit strategy to get rid of all the excess cash that he is sitting on"

I am sure you have read this in some Media. Can you guess what he wants people to do after reading this statement?

One thing is sure there was literally no high volume share transactions in the Market. Retail investor stayed away from the Market after 2008. Stock market fast up/down cycle is to bring back retail investors to the Market. Companies like Goldman, Morgan etc underwriters make good profit in those share transactions.

They know people are sitting on Cash. They will keep bringing down the Market until they see investors are coming back to the Market.

I think what Buffet is trying to say is that if you cash why dont you invest in his companies like him?

aam aadmi said...

I don't know why people take these big investors at face value, what they say on TV is also a big part of their game.

How do you know if Soros hasn't bought physical by selling his GLD shares ?
I know that many countries don't require a disclosure for owning physical gold.

Same with Buffet, hard to imagine that he does what he says.

samix said...

so much for India being the next superpower

According to CIA world fact book, the Current account balance of India is -37,510,000,000 (minus) while China is the wealthiest country in the world with $ 426,100,000,000 (Plus) . India listed as 182 and China as no.1 [CIA: The world fact book]

According to WFP, India accounts around 50% of the world’s hungry. (more than in the whole of Africa)

but, hey wait, we have RE worth billions!

Anonymous said...

I cant wait for the day when there will be a revolution in India, similar to what happened this year in the Middle East. In the Middle east they dont have freedom of expression. In India it is also the same thing, except that GOI does not say it in public.

As far as Buffett is considered, if you really know what he is doing with Berkshire Hathaway and his money, then you got to go see the company's annual filing, etc. You will know how the money is being ploughed back into his company. I dont own BRKH but I do own stocks of companies that BRKH invests like Coke, Proctor and Gamble etc, etc and I have made well for myself over the long run.

SR said...

The whole argument about India and China having a huge "need-based demand" for real estate is flawed. Since real estate in India and China has appreciated about a 1000 times (100000%) in the past 30 years, people have continued to believe that it is the best and easiest investment ever. What if the perception changes that real estate will not go up any more over the next 20-30 years, even if it does not fall much? How many folks will then buy apartments for over 50 lakhs each and then pay annual mortgage interest of over 5 lakhs when the same apartment can be rented for less than 2 lakhs per year? The whole "demand" will collapse.

polt said...

I agree with SR above. Real estate cycles while generally lasting 5-10 years, can also last for decades. See the herengracht index or Hoyts classic book on 100 years of land values in Chicago. An entire generation can grow up thinking home values only ever go up, and then the next generation faces the reverse.
So who knows. Maybe we are in a 30 year bubble :)

Anonymous said...

Australia bubble is finally bursting. India's will burst with a loud noise. I think it will coincide with a change in Govt. in India.

Anonymous said...

My father brought a flat in Mumbai when he was a NRI in 1978. At that time USD was Rs 8 and he paid Rs 80,000 or $10,000 for the flat. Now the flat is worth Rs 84 lakhs or $171K. So this gives a yeild of 9% based on USD terms. Capital markets in US returned 11% yoy when the markets peaked in 2000. So based on this assumption should he be expecting further increases in the price of the flat to yelid him 11% yoy returns in terms of USD, or in other terms, the potential prices of the flat should be Rs 1.53 crores.

If this assumption is correct prices in Mumbai should double soon as India is going to be superpower and Sensex should go up to 30,000.

Serious comments onlu

Anonymous said...

Can we please stop with these stories of how one's father (or uncle or grandfather) bought a flat in 1980 for Rs. 2000 and now it's worth 10 Crores bullsh*t?

I'm serious. Just stop it.

Sick and tired of hearing the same recycled propaganda.

Sorry if this offends anyone.

Anonymous said...

Say what you wish...but the fact still remains that RE prices are only going up.

Accept the fact that RE prices will never correct.

Pawan said...

Can we please stop with these stories of how one's father (or uncle or grandfather) bought a flat in 1980 for Rs. 2000 and now it's worth 10 Crores bullsh*t?

These are no bulllsh*t stories. This is true. Whether this is repeatable or not is another debate.

Anonymous said...

If this assumption is correct prices in Mumbai should double soon as India is going to be superpower and Sensex should go up to 30,000.

Followed by

Serious Comments Only

Seriously, how do you expect anyone to make serious comments after you made that statement?

India will become a superpower when pigs learn to fly F-16 fighters. If I say "when pigs fly", that is just not "serious" enough!

Anonymous said...

If this assumption is correct prices in Mumbai should double soon as India is going to be superpower and Sensex should go up to 30,000.

LMHO, Cannot agree more, finally we all can buy a piece of (UN)real estate and share our lives on platform as all our earnings/savings will go for paying mortgage.

Anonymous said...

"These are no bulllsh*t stories. This is true."

I didn't say they weren't true. Just that I'm sick and tired of hearing of them.

Anonymous said...

Whoever's father bought properties, can they tell if theirs father took loan?

Can you buy property without loan today?

Anonymous said...

Even if you take loan and do not put substantial portion as down payment, you cannot buy RE.

Wait and watch the downturn. No matter how much denial mode people of India are in that RE will not go down, but when it will start happening, it will take them by a shock of the century.

Same is with stocks. It will keep drifting down to 14K and then 13K. It will be a slow grind but would happen. Rupee will go to 60 in the next 3-4 months.

And then would come the fun part. Unemployment and salary reductions. GOI facing budget deficit downgrades from Moodys and S&P. How much can they really inflate?

Anonymous said...

My father did not take a loan to buy the flat in 1978. He was a working man. The only reason he could buy the flat by paying cash over 2 year period was because he was a NRI. Other people in the colony who purchased flats were NRIs or business men with black money or people who had generous housing purchase allowance from their place of work, or had money given to them under the table.

The only reason that I may be able to purchase the similar flat now is because I have savings and I am an NRI, otherwise I would be taking bank loans, if I were working in the same job as my father did in the 70's. So times have changed. I distinctly remember prices in Mumbai doubled in 5 years from the 1974-1978 time period.

ShashankRao said...

agree to some extent with the above post.
RBI is raising interest rate. The reason they give is that they want to curtail rising inflation. But what I think is GOI is already in Red. GOI needs money to pay salary to its employee, pay off interest on bonds etc. We all know Govt servent are drawing in salaries after 6th Pay commission.
Where do you think GOI generate money? ofcourse from its own population. GOI will ask RBI to increase interest rates so that people keep their money in Banks for higher returns but eventually will be used by GOI. GOI need not have to do any efforts to raise money to reduce its massive deficit.

Anonymous said...

Mr. Rao,
There is another reason and that is India is massively under debt from outside. The debt to GDP ratio is getting bigger and bigger. They could be next Greece if not controlled fast.

Maybe if they do not control, we'll see exactly the same things like austerity happening in India which means salary cuts by 50%, RE collapse, Stocks collapse, Bonds go high and riots.

People in power should learn from what is happening all over. They shouldn't just care about the next two years till they are in power but for the long term future of the country.

samix said...

Where do you think GOI generate money? ofcourse from its own population. GOI will ask RBI to increase interest rates so that people keep their money in Banks for higher returns but eventually will be used by GOI

In a fiat based economy, the government is not dependent upon the people to generate money, they just 'print' it.

That is why charging people taxes in a fiat economy is a fraud, why tax when you can print it ?

inflation concerns ? they dont care, they print and then they fudge the 'official' numbers!

polt said...

"That is why charging people taxes in a fiat economy is a fraud, why tax when you can print it ?"

So that taxes can be progressive. Inflation (money printing) is an implicit tax, but it is regressive since it hurts the poor more than the rich.

samix said...
This comment has been removed by the author.
samix said...

A fairer tax system is wealth tax rather than Income tax, where the Income is not taxed, rather what you hold beyond a particular time frame is taxed.

Such a tax system makes sure that tax is collected from those who have a surplus.

GSM said...

Some comments on the above posts which I think are not completely correct "Technically".

GOI will ask RBI to increase interest rates so that people keep their money in Banks for higher returns but eventually will be used by GOI.

GOI will have to pay propotionally higher interest rates for the borrowed money. Lower interest rates benefit GOI to borrow like 2009 not high considering the savings that people of India have.


There is another reason and that is India is massively under debt from outside. The debt to GDP ratio is getting bigger and bigger. They could be next Greece if not controlled fast.

Maybe if they do not control, we'll see exactly the same things like austerity happening in India which means salary cuts by 50%, RE collapse, Stocks collapse, Bonds go high and riots.


Like I have said many time before, Indian debt is financed through internal savings thorugh banks, no external party can speculate in the bond market and crash it like Greece. Besides, unlike Greece whose exchange rate is fixed, in India rupee can be devalued so no one can force austerity. As long as we are growing at 7+ % GDP, we make sure the debt to gdp doesn't explode.

In a fiat based economy, the government is not dependent upon the people to generate money, they just 'print' it.

Govts cannot print money. Central banks can print money and monetise Govt's deficit spending. But Central Banks are suposed to be "independent" bodies to take care of money supply and inflation.

aam aadmi said...

Govt of India borrowing to go up

http://www.reuters.com/article/2011/09/29/india-borrowing-idUSL3E7KT2GD20110929

Bullish for the rupee!! Watch out for ratings downgrades and Rupee at 55

Anonymous said...

Axis Bank offers lifetime fixed interest home loan at 11.75%
PTI | Sep 29, 2011, 09.49PM IST

http://timesofindia.indiatimes.com/business/india-business/Axis-Bank-offers-lifetime-fixed-interest-home-loan-at-11-75/articleshow/10174271.cms

Dear brothers,

time is right to purchase your dream home

All the best

Anonymous said...

It is not just the Indian developers who are facing a cash crisis.

Chinese property boom starts to wobble - http://www.ft.com/intl/cms/s/0/587c4d0a-e8ef-11e0-ac9c-00144feab49a.html#axzz1ZP0siGQa

Direct Property Deal said...

While over the past 12 months there has been little activity in the Buy property in India and home loan markets from First Home Buyers.

skeptic's ghost said...

Chinese RE cash flow is actually negative - i.e. For every dollar spend by the builders there, the Government is giving away maintenance money to just keep the prices same so that there is no stopping of future plans.

Chinese RE will take down the world much harder than Greece. Chinese internal debt is 3-4 trillion US$ which is never mentioned in its fudged books.

Like America, China too has borrowed from its future hoping to make a bang today. There are going to writedowns everywhere = please read this piece on zerohedge -

http://www.zerohedge.com/news/muddle-through-has-failed-bcg-says-there-may-be-only-painful-ways-out-crisis

The whole world is facing a lost generation.

Anonymous said...

INR=49.1 official rate

Market Mumbai = from 56 to 60 depending on dealer (Fort area =56)

Forecast:

may reach 70 at end nov 11

Hold on if you have dollars or buy in the market at 56


z

Anonymous said...

Z

I got a boat load of dollars to sell you at 60. Let me know if you want it.

shailesh said...

I recently inquired a flat for rent in distant mumbai suburb. The rent was Rs. 6000. When asked for price of home, the answer came Rs 50 Lakh.

Just basic math, Interest on 50 lakh at 12%, is Rs. 50,000. Do people forget that? This is ridiculous !!!

Anonymous said...

Dear Shailesh,
So how much should be the price of this house with 6K rent or how much should be the rent for a 50lac house? Is there a formula?

I think the rent should be around 40K per month to justify a price of 50lac or the price should be 10lac to justify a rent of 6K.

We can see how big of a bubble we are all into? Prices would have to come down by 80% by above standards. I think even 60% drops would be justified.

Just FYI I'm a happy renter and I don't plan to buy in this insanity. My family supports me and I'm saving money for future needs but I refuse to pay it as EMI to banks or be a puppet of builder mafia.

SR said...

Even at the peak of the US housing market in 2006 (which in my opinion was NEVER a bubble compared to all other developed countries and BRIC), the median single family home price of USD 250,000 was less than 14 times the annual median rent of USD 18,000 (1500 a month). Even in high demand areas, the ratio should not be more than 20. In most Indian metros, even the smaller ones, monthly rents range between 10,000 and 15,000 rupees for medium sized apartments. That should mean a max home price of 36 lakhs for those apartments, yet the asking prices are double that.

Pawan said...

Even in high demand areas, the ratio should not be more than 20.

I am getting more and more doubtful if this ratio can be universally applied.

Look at stocks. People talk about similar ratios there. But a Jubilant foodworks (owners of Domino's Pizzza franchise) is trading at a PE of 60+.

Do you think that is insanity? May be. But it is not going to PE 15 in the next 10 years. This stock is expensive because it is believed that Indians will eat more and more Pizzas and the earnings for the stock will rise so fast its PE will come back to reasonable levels.

FMCG stocks are expensive because their 'quality' of earnings is great. While for cyclicals, earnings rise and fall with economic cycles, for FMCG it does not hold true. You would use Colgate even in a recession.

Housing is at the same keel, specially in premium areas. Even in a recession, people who are able to afford 1 Cr. properties will be least affected. I went to a Mahindra showroom on Friday to see XUV 500 and I was surprised to see the crowd. Later I learnt more than 8000 were booked on day 1. And these cost more than 12L a piece. Where is the recession.

I see many hopefuls on this blog but guys you can't keep waiting for a catastrophe to be able to buy a house. What if the catastrophe never came?

Housing is expensive compared to stocks. May be Gold as well. So the best you can do is invest in something which grows faster than RE and once you have enough, switch into RE. If you are holding cash hoping a 50% drop in housing is coming to make it affordable, it is not coming.

Anonymous said...

Well Pawan , if you want to buy go right ahead. I on the other hand whole heartedly agree with Anon at 5:28. I have no interest in becoming a debt slave to banks. Id much rather be in liquid assets keeping my options open.

polt said...

@Pawan - "I am getting more and more doubtful if this ratio can be universally applied."

It is an average, so it can be applied on the whole. It does not mean that there will never be pockets of affluence where people are willing to pay more for location/convenience/whatever else. But if the average for the entire city or country is on the order of 30 or more, then expect a correction.

" But a Jubilant foodworks (owners of Domino's Pizzza franchise) is trading at a PE of 60+."
This just means that all future gains have likely been priced in. And therefore it is a high risk investment.
I would guess that 90% of retail investors do not know that stocks and assets become SAFER when their prices fall and riskier when they rise. Most people end up chasing the opposite and get their fingers burnt.

samix said...

This just means that all future gains have likely been priced in. And therefore it is a high risk investment.
I would guess that 90% of retail investors do not know that stocks and assets become SAFER when their prices fall and riskier when they rise.


Very good observation, thank you.

Pawan said...

" But a Jubilant foodworks (owners of Domino's Pizzza franchise) is trading at a PE of 60+."
This just means that all future gains have likely been priced in. And therefore it is a high risk investment.


Correct. But that does not mean prices will necessarily correct soon. I have always said 20% correction is possible. 50% correction may take a decade. I stand by it.

Btw here is an interesting chart for all to see http://www.jparsons.net/housingbubble/

And that is what I said. Put your money in something which grows faster than RE. 50% nominal correction from today's price may never come.

Anonymous said...

"In most Indian metros, even the smaller ones, monthly rents range between 10,000 and 15,000 rupees for medium sized apartments. That should mean a max home price of 36 lakhs for those apartments, yet the asking prices are double that."

This assumes two things: (i) Rents will never increase to justify the higher-than-market P/E's of housing and (ii) The currency in which RE is denominated will remain stable. Both are horrendously bad assumptions in the Indian context. High house prices reflect (among other things) an expectation of higher future rents and a decline in the future value of money.

polt said...

"This assumes two things: (i) Rents will never increase to justify the higher-than-market P/E's of housing "

No. A P/E ratio of 15 already factors in a growth rate in rents higher than inflation. But historically rents have rarely grown faster than inflation. The recent higher-than-inflation rent growth in India is not representative of long run averages.

Anonymous said...

I've been following this blog with interest. I'm a dubai NRI , been saving to buy a apartment in Mumbai.

Also, I've been noticing the decline of Rupee against dollar (UAE dh. is linked to $) Currency dealers in dubai tell me that the days are not far off when Rupee is going to hit 60.

Listen to thee rumors, i've been postponing my investment, but been observing that prices are steadily rising

I'd appreciate suggestion from readers about the future of real estate in Mumbai . Is it worth waiting

Dhiraj

Anonymous said...

I have been following this blog since 3 years. I'm from pune. I would like to mention two scenarios which I faced recently.
1. One of my friend purchased a flat at sinhagad road for rate 4200 some 4-6 months back. Today for same site, builder quotes 4800 for similar flat. Increase of 400-500. Prices increased just month back. This is least quoted price in same area.
2. I went to wagholi, outskirts of pune towards A'Nagar; to visit one big site. I saw a mad rush there. Only few flat were remaining. The scheme was just 2-3 months old. Not sure if its marketing gimmick of the builder or how.. but that was not a paid rush.

Today, I feel that prices will not come down even by 1%; despite whatever financial logic you apply. I have been waiting since 3 years now to purchase a 1000sq ft flat. I missed 2009 in anticipation of bigger correction. I don't earn 15-20L per annum. 1000sq ft flat in some good area in pune looks like a distant dream for me. One can get it only if one can pay 50L+ amount.
So, I think instead of just waiting in anticipation of a major fall, one should put efforts to reach the 50L mark asap. One cannot spend whole youth just waiting for a miracle.
I haven't studied the economy, maybe I'm wrong, but sincerely these days I can't believe views posted on this blog. No offense. All signs are exactly opposite of what I read on this blog.

-Ram

Anonymous said...

Anon above:
Your name is "Ram" but you talk like a Chutiya or a pimp of builders'.

If you think you should buy, go for it. No one is stopping you.

Majority of us will wait it out. Is it written in any book that we "have to" buy RE before we die. Why can't we rent at 1/10th the price. The idea is to live and not pay EMI to some bank/builder all our life. I've been renting and I've saved a lot of cash in the past 4 years. And now I definitely don't want to blow away my cash. I'm getting a 11% return without any risk and practically my rent and all other expenses including car payment comes from my interest.

I'll buy only if prices fall by 60% or at least they are in coherence with rent. If rent is 10K, price should be 15 lac. If it more than that, I'm not buying and would suggest other financially prudent folks to do the same. Ultimately it is your money, you future and your arse if all goes down.

aam aadmi said...

@Anon at 7:15

@Ram
You can go and make all the inferences from your experiences that you like but remember that major economic cycles run the course of 20-25 years, so a person who was born in 85 would have seen only rising house prices his entire life only to see prices fall for the next ten years.
Similarly anyone born at the beginning of 1929 depression would have only seen falling house prices for the next 15 years.

Most of us make mistakes when we draw inferences from our limited life experiences. It's not guaranteed that if you do all research you will come out on top but it's better to play safe right now than be sorry, esp with such a large amount as 50L.

All indicators coming from Europe and US are telling us that we are standing on the cusp of a major economic meltdown that will surpass the 1930's. If you want to take a contrarian view be my guest, it's your money after all.

Anonymous said...

Why are RE rents so low compared to buying RE? no demand for rentals?

Anonymous said...

Anon above:

RE rents are low because:

--There is no real demand for housing. It is all speculative demand created by hoarders and speculators thinking that they would sell in a year or two when prices go up.

--If the demand is real, rents have to go up but they haven't. It means there is no shortage of livable housing.

--This whole RE business is going to go down very fast and with a loud noise in India and all over S. Asia including Australia.

--Speculation was ceated all over by low rates and builder/bankster mafia. I'll make sure if my kids get an MBA they do ethical business or not work. A lot of major scams and pnzi schemes are a creation of these so called highly educated MBA Finance fools from very prestigious colleges who are ripping the common man for their selfish interest of quick profiting, so that they can earn a huge Bonus.

Anonymous said...

I am NRI and wanted to know how one pays for a new flat to a builder?

Whn the builder announces a new project and if I am interested in buying a flat there, how much money I need to pay to the builder at this time and what kinds of installments are prevelant in the industry and when to make those installments?

e.g. how much money at the time of booking? how much as the building is being built? and how much at the time of possession?
Thanks.

Anonymous said...

I wonder who in the sane mind would loan India 53K crores to splurge on corruption activities and high paid GOI salaries. If Rs32per day is enough to live, why are people GOI employees getting Rs.3000 per day with a lot of health, medical, education and other allowances.

Time for all this nonsense created by politicians to burst which includes high salaries, high RE, high debt, high stocks etc.

Anonymous said...

NRI Anon:

You can wire the money. You'll have to look at the builder conditions of downpayment/loan etc.

But why would you buy? If you an NRI you are probably in Dubai, Europe or US. You have seen first hand what it is like when RE bursts. And what the heck are you doing on this blog if you have to buy. It means you also believe prices would correct.

ANyway, your money and your life. If you are in Canada or Aussie, their bubbles are about to burst and you maynot have seen the catastrophy that busts cause. I wouold say that try to save your job wherever you are. H1Bs and L1 visas are not being renewed anymore. Once the term expires, people are going back. DO nat take a loan that you cannot pay otherwise the Indian banks will take your pants also. They are known for hiring Goondas to get their money back.

Anonymous said...

Negative real interest rates have completely corrupted the free market system worldwide and has led to horrific misallocations of capital and bubbles everywhere. After 2008, the real estate bubbles of the Western world were simply transferred to the Developing World. Today, every wretched third world city on the planet from filthy Mumbai to AIDS-ridden Mombasa has a housing bubble.

It's like 2007 all over again. Remember 2007? Gold? - record high. Oil? - record high. Housing? - record high. Stocks? - record high. Arts and Antiques? - record high.

Nothing changed after 2008, the debts of selected cronies in the private sector were simply transferred to the balance sheets of governments who bailed out their buddies.

The whole world is built on a phony economy which is financed by borrowing from the future endlessly. I don't know where all this will end. I do know that while I don't trust asset prices, I have an ever deeper distrust of paper currencies. So I agree with Pawan to the extent that holding cash waiting for asset bubble corrections may not be a smart idea.

Anonymous said...

Anon above:

Your analysis is very accurate.

I remember 2007/08. I made some nice money in commodities at that time since oil had crossed $100. Your are right, we are in a similar situation today - gold, commodities, real estate, everything is in a bubble. But, such occasions do arise from time to time. The thing to remember is that cash can definitely be king, during regimes of high interest rate.

I have found something unique about the real estate industry. Like every industry, it requires capital, labor, commodities and the like to run, but it requires one special thing : Idiots.

After all the analysis on this site, and clear signs that real estate in India is going to crash BIG TIME, and stay low for the next 5-10 years, the RE industry will still find enough idiots to buy into their crap. Trying to help these "mentally challenged" people, but explaining basic economics to them, is a futile effort. Trust me, I have tried with a couple of people that I thought had some brains. They still went ahead and bought. One of them, an NRI in US, foreclosed his flat in India last month. He lost about INR 30 lakhs of his personal equity in the flat.

Idiots will be idiots, and for the RE industry, idiots will be cannon fodder. Let us not try to save the entire population of idiots in the world, saving our own assets is good enough.

Rustomjee

Anonymous said...

1) Sensex is trading below 16K again, today. very close to 2 year low. If Greece defaults, the stock market is toast for 2 years.

2) Gold is at 26K/10g levels. It is expected to go down as well.

3) One public sector bank today is offering 10.1% for FDs (for non senior citizens)! The 10% interest rate is a psychological benchmark for banks. It has already been breached!

4) Real estate is so toast!! If you invested in DLF two years ago, you have already lost more than half your money. Congratulations!!!

5) If you are an idiot, may be, you can sell your DLF stock now, and invest in a DLF property. You will make up your losses since real estate doubles every year, right? Go for it, buying real estate is an opportunity of a lifetime, specially in India. We are an emerging superpower you know, NRIs are running over each other with bags full of cash, only to invest in Indian real estate. Specially, invest in Mumbai and Bangalore if you want awesome returns on money. Go for it, idiots!!!

Anonymous said...

Anon above

Greek default is 100% sure. It not if, but when will this happen. No matter what the EU, ECB does Greeks are ggoing to default. This only means one thing. All capital markets, including commodities and other assets will tank another 20%.

Best to hold cash. Cash is King, especially USD for now. I just cant wait for stocks, gold and RE (In India) to crash so that I can load up, especially on gold and my favorite international stocks. As for RE in INdia, I will rent if I need to.

Next will be QE3 and QE4. THese are all games. We are in a long term bear market and any amount of printing will not save us.

Anonymous said...

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/sbi-slips-to-2-year-low-on-moodys-downgrade/articleshow/10230278.cms

Everyone's "safe" bank SBI is rated at D+. Imagine the plight at the other ones. I guess bank bailouts are in offing here too.

aam aadmi said...

@Above
SBI is TBTF, govt will not allow it to fail. Besides that Moodys is a worthless piece of shit, SBI is much better than many of the European banks which are rated as AA by Moody's and S&P. Shiny buildings and fashionable MBA's doesn't mean a safer bank. I thought Lehman demonstrated that.

However I see a lot of problems even for SBI in coming years as liquidity dries up.

ShashankRao said...

I persoanlly dont think there would be crash either in RE or commodities. I think correction will be like downward Staircase waveform. If you know what I am talking about price would come down a bit then would stay there for a while before going down again a bit.
----|
|___
|
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For sure Greek default consequences will not be like what happened in September 2008 because people (read investors) are aware of the possibility.

The bigger question is if developed and developing nations resorts to Currency printing after the Greek default. All indicators in the Market pointing the possibility. All banks want that to happen. I think situations and circumstances are being purposely created in the Market by big fund companies. People may think Govt acted on their own to calm down the situation but there will be some other hidden hands befind this move. Who knows?

Well.. question is what should one do should Greek declared bankruptcy.

In the context of India I personally think India wont choose Currency printing. If they do then dollar/rupee rate will go beyond control and it will make external borrowing or external debt payment expensive. GOI will choose to raise money by internal borrowing.
GOI will print the money only when situation stabilzes.
I wont surprise if GOI reintroduces Indira vikas or Kisan vikas patra certificats that doubles the money in 5 or 6 years(today it is 8.6 years).

Cash is king in India but cant be said in the USA if they decide to go for QE3.

If you have Cash then you have two choices left: Fixed Deposit in Indian banks or Casino in Las Vegas.
Just Kidding

ShashankRao said...

Waveform drawing is messed up in my post above.

Anonymous said...

Greek default will be the equivalent of two Lehman Brothers going bakcrupt. Already a major French-Belgian bank that has some serious exposure to Greek loans lost 40% of its value in the last couple of days.

However US Fed, ECB etc will not let the floor open up and take the markets to 2008 lows. They are already oiling the printing presses to start next round of QE. I personally think next QE will come abouts towards the end of November. So till then we are in downward spiral for commodities, including gold. If you have cash in the US best to wait till November and then buy all the gold and silver you can get a hold of. RE in India will be fu**ed badly as US $ will cost 58 INR soo.

Anonymous said...

Gold going back to $600 level. Everyone seems to be shorting it.

Vik: Time for anew article. Maybe one about SBI downgrade and how the whole country is exposed to it. About the huge debt India is holding and how to prevent it to be next Greece. Masses in India are fools and too optimistic but do not know the reality of debt. Would Indians be able to take austerity unlike Greece? They are so used to making easy money without much effort.

Anonymous said...

Best form of investment in the current climate is buying US $.

Beware of fake notes that are virtually indistinguishable if you are an amateur. Buy only from reliable sources.

US $ is expected to InR 60 by end of this year, or slide still further

Z

Anonymous said...

"They still went ahead and bought. One of them, an NRI in US, foreclosed his flat in India last month. He lost about INR 30 lakhs of his personal equity in the flat."

Mind telling us which Indian city the NRI sold a flat for 30 lakh loss? Because selling property at a loss is virtually unheard of in India.

Anonymous said...

"Would Indians be able to take austerity unlike Greece? "

Well, it's not like the government gives free stuff to Indians as things stand right now, so I can't see how worse "austerity" can be. If you take Greece, the government funds free education, health care, pensions, etc. The Indian government does none of those things right now. So "austerity" can't be much worse.

Pawan said...

Would Indians be able to take austerity unlike Greece?

Would be very difficult.

Choice would be between cutting the expenditure on various govt. deptt. and ministries versus development and welfare scheme. We know who will get the bitter bill.

Anonymous said...

Austerity:

Salaries reduced by 50% and 50% layoffs in GOI would be the true face of austerity in India. It will also take down the GOI spending on wasteful projects by 50%. It would be a pain all over once it happens. Either spend less now by control borrowing or take a danda in your back and spend less forcefully unlike whole of EU.

Anonymous said...

"Mind telling us which Indian city the NRI sold a flat for 30 lakh loss? Because selling property at a loss is virtually unheard of in India."

You'll hear the above a lot in the coming time. NRIs are bailing out RE due to high USD, job layoffs all over US/EU, salary reductions, Govt. cheese drying up for IT companies etc. Moreover, the sentiment is going negative now with Indian RE and NRIs want to short it before it is too late as they have seen the other side of it.

Indians can sit on it for a long time. Thse high prices once they fall will not return for the next 15-20 years.

I would say that folks should worry about saving their jobs and have stable paycheck rather than worrying about RE now. Too much mess has been created which would take 5-10 years easy to clean, provided no more mess is spilled on top of this.

aam aadmi said...

Salaries reduced by 50% and 50% layoffs in GOI would be the true face of austerity in India. It will also take down the GOI spending on wasteful projects by 50%. It would be a pain all over once it happens

Does that mean the Food Security Bill won't see the light of the day ?

Anonymous said...

"You'll hear the above a lot in the coming time. NRIs are bailing out RE due to high USD"

I don't understand. Why are NRIs "bailing out (of)" RE due to high USD? If anything, won't they be able to afford MORE RE with a strong USD?

Anonymous said...

Anon above:
A lot of NRIs used their own houses as ATMs to take huge loans and invest it back in India. Now when those ATMs are closed, RE is already 50% in value in US, NRIs are struggling to keep their primary residence in US.

Secondly, they are struggling to keep their jobs in a high unemployment scenario. Forget about getting much help from NRIs as they are not in a sound position even if USD goes to 60.

One has to understand that a lot of money that came through NRI route in India was in fact stolen money in India that came through Dubai and Mauritius route. It is call money laundering and black became white in the form of NRI money which got quickly invested in RE and major projects in India.

Normal NRIs are not rich unless they are sharing apartment with 4 people and living hand to mouth to save some dollars. If someone lives a good life in US, he/she needs at least $4,500 per month to survive nicely.

Anonymous said...

And NRIs are also selling as they can see the bigger picture. India is not really shining but it was all based on phony money and debt.
It was all financial engineering and time is now for profit taking by shorting stocks and RE.

samix said...

Today, every wretched third world city on the planet from filthy Mumbai to Mombasa has a housing bubble.

lol, a true but sad state of affair!

Anonymous said...

@anonymous 1:29

Well said and how true. Major portion of money coming into India other than IT sector earning is local money laundered abroad. On top of this INRs exported are bought by foreign govts. and reexported to India to fund certain political parties or politicians

Anonymous said...

Looking at house rents and ownership house prices, I still don't understand why should one buy when one can rent same house at fraction of cost. Only reason I would not rent but buy is when cost of ownership is less than Rent for same house. Especially true for people who are relocating and are ready to relocate for better job opportunities.

Anonymous said...

@Above Mamu,

Why people buying houses when rent is low ?

There is no guarantee that rents will remain low. If the rents increase and they are beyond the means of people to pay, they may have to resort to street loving. No one wants that. So, people are buying even if the prices are exorbitant. Those who are paying mortgage face the same sort of risk, but it is less riskier than staying on rent.

Inflation applies to housing too. What is costing today 50 lacks may be 5 crores in 10 years times. Can one save 4.5 cr in 10 years ? Maybe some businessmen but not employees.

Jai Hind

Anonymous said...

"Why people buying houses when rent is low ?"

The answer to above is:
--People are greedy and think they can profit more as RE never goes down.
--They have not seen a downturn and have always seen RE to go up and not down.
--The stigma in India that you should have your own house even though it never belongs to you until you pay it off. It is always owned by the bank for 15-20 years.

I would rent and never buy if prices stay like this. It would be even cheaper to stay in a good hotel rather than paying expensive price and mortgage for an asset that will decline by 60%. It is like catching a falling knife if I buy today.

You can buy and buy more. Buy all the flats and wait for them to be 10 crore. I'm happy with what I have.

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