Friday, November 18, 2011

The coming NRI dilemma

I was speaking to a friend the other day and he bought up the issue of buying an apartment in Bangalore. Now IT folks these days have a lot of choice in terms of cities however this guy had lived in Bangalore in the past and therefore the decision was pretty much obvious. The next thing which came up was within Bangalore which area's are nice, inexpensive but at the same time accessible to the IT corridor. Koramangala was mentioned but easily discounted as it was too pricey, so was Indra Nagar and Jaya Nagar as they didnt't meet the inexpensive criteria. Next came up the Marathahalli - Sarjapur road belt. While it didn't meet the nice criteria, it was easily the cheaper option given that they were on the IT corridor itself. 

The topic of budget came up and a quick check of real estate websites puts the rate roughly at Rs 4,500-6000 per sq/ft all inclusive. A 3 bed flat should easily cost anything between 70L to 1 Crore. Now 70L is definitely not inexpensive however as compared to Koramangala this was definitely cheaper. Next the topic of the rupee came up. At Rs 51 a dollar the rupee has dipped 15% over that past 6 months. My friend was instantly salivating at the thought that he is suddenly 15% more richer then 6 months ago in terms of net-worth. Psychologically he felt more comfortable purchasing the home now then few months ago.

This led me to think on the impact NRI's have on Bangalore real estate. Come NRI season if 25% of NRI's interested in purchasing close deals at prevailing prices the builders have enough staying power in the game to close the the remaining 75% at higher prices. The biggest weapon which the builders have is that they can delay projects at will without fear of any litigation or judicial action. In such a scenario prices will always be held constant or increased with inflation. My NRI friend has the US dollar as his Indian inflation fighting weapon, however he must compete with other fellow NRI's to carve out his space in the Bangalore micro market.

At the end of the discussion my friend concluded that he will look at apartments in this belt, built up reputed builders with a gestation time of 3 years. He felt he had enough time then to get the apartment paid off without taking a loan from Indian banks. We talked about cheap financing available from US banks and he could easily get some 0-4% APR loans in the current market which can keep him liquid. One interesting thing coming out of the discussion was that we never discussed renting and briefly discussed buying plots as the discussion was focussed on the primary home at his destination city.

As we were wrapping up our discussion the only thing I asked him to do is to make sure he can sleep well at night, regardless of what happened to the rupee, interest rates, his job or the Bangalore real estate market. Anything which sacrifices sleep  is not worth the trouble. 

I would like for readers to point out if this sentiment is prevalent across cities among the NRI community. In my opinion builders who cater to NRI's will always have smooth sailing thru the ongoing tough times and will inflate the bubble as the supply of money is always increasing. 

113 comments:

Anonymous said...

Nice Post.
Ok agreed this time NRI's are the saviour with Re. at 51.
After this what?
Who will save Re.?

Indians were fools and still are.
Every poor without education is automatically a fool since he can be easily manipulated into thinking that he is the worst creature on the earth hence he has to suffer at the hands of the rich.

Agree?

Ok. Now we see a trend that indians are becoming smarter. So it wud be safe to assume that once we feel that all this is done by the government, corrupt people and what not, automatically revolt will set in.

So if things dont change in the next 2 yrs we will see revolt by all those fearing that their life will be dark in the near future

Anyways look at it
History,Economics,Human Pyschology,Mathematics..

Re has to go down.
THERE IS NO OTHER OPTION
Eventually truth prevails.
Good always gets the better of bad.

samix said...

I am an NRI too, but really I do not think that the 15% increase makes me rich!

Another thing one move in the market and the rates can go back to the 40's level, so then I become poor again!

Anonymous said...

Forex market is going through a unpredictable phase and no players forecast beyond 6 months. An Israeli attack on Iran, may take oil to $200 a barrel level and Indian Rupee to 65 a $. Again, no one is sure.

The wise move is to book or buy, without overstretching your wallet. As for Bangalore, the city is heading for decay. It wont be long before it reaches Mumbai stage. The pollution will be so high that most IT companies will be forced to move to less polluted Indian cities.

Anonymous said...

Take this comment for what its worth.

Most of so called NRI's are barely able to keep a roof over their heads. When the proverbial shit hits the fan in the west, most of the NRI's (unless they have fully paid up assets) are going to be bankrupt relatively speaking.

I see this all around me. Lots of families who have bought huge houses when there are job losses, is a sure fire way to loose everything unless you realise the game is up. Unfortunately they wont learn the easy way.

I know a couple from Houston working in very high positions in a tech company. Both on salaries over 1 m$ per annum. They lost their jobs a week apart as a part of redundancy.

That should be lesson to all. But no, people wont learn. We all are going to learn the hard way.

Property is a dead duck. Once we are through the worst phase of this recession, we will see a lot of properties on market, all will exchange hands in cash. No derivative market to back it up.

Its coming. Its coming folks. You have time to prepare. Buy gold now. Not rubbish paper gold like ETF or unit trust etc. Physical gold.

You wont regret it.

NRI (NY) said...

Both on salaries over 1 m$ per annum!!!!!

wow!! After tax and living expenditure, I'm sure they were able to save $500K. Say, they just worked for 5 years (extraordinary genius person to reach this level) , they must be having 2,5M bank balance, nearly 13crores!!!

Why would these guys need to work in India

I'm making $100,000 a year and have been in US for 7 years. I've enough savings to comfortably retire after buying 1cr apartment in Bangalore.

Don't underestimate NRIs

Anonymous said...

I have been in the US for 11 years. I worked hard and saved every penny (paisa). Last year, I decided it has been 10 years and time to return to India.

After searching for a flat in Mumbai and Pune, I found real estate prices way above what income real estate produce. For example, rental income per sq. ft. or sales per sq. ft. etc. I concluded the prices were very high.

I can buy a same size bunglow in a very good NYC suburb at prices much lower than I can buy in Mumbai. This does not make sense when you account for per sq. ft. yield i.e. rental or sales, etc.

I therefore decided not to transfer my hard earned wealth to builders and corrupt babus. Unless prices fall by 60% or rupee depreciates to Rs. 100 or a combination thereof; there is no chance I will buy at these per sq. ft. prices.

And hence I decided NOT to return to India last year.

Anonymous said...

Anon at 1:31,

Unless you made some good stock investments after 2009 march, or some other investment returns how can anyone with 100k salary have money to retire after 7 years?.

let's just look at the math. assuming you were making 100k from year one , 700k is revenue - ~300k taxes - ~200k expenses at the low end.

Fill in the missing details.

Anonymous said...

INR is not the currency of the world. Govt. runs budget deficits, trade deficit...who is going to invest in such a system? INR is doomed to go lower and the standard of living with it!

Whoever think that by depreciating the currency you increase the standard of living..the most you achieve is probably to save the export jobs!

Good Luck in having high hopes for INR and the Indian economy.

Anonymous said...

http://indiatoday.intoday.in/story/new-property-prices-may-fall-by-25-per-cent/1/160633.html

Anonymous said...

Read the article above.
That is the main reason prices are goin up cuz banks are restructing loans and thus creating more and more delay/debt and ensuring their own downnfall.

Im sure when banks no longer wud restructure loans, then we see all hell break loose. Everyone is goin to fall pretty hard.

As for me, i might get a good real estate deal but what bout my bank :( will it survive?

All said and done the builders and bankers are the ones who profit the most at teh cost of our money.
they know they wud be bailed out. seeing the US all the world banks are confident that they wud get bailouts hence the arrogance

NRI in US said...

As an NRI, who has invested in a property in India with the aim of repatriating the sales proceeds back to the US, I can tell you this. I am a loser. I invested about USD 200,000, when USDINR was 40 (Apr 2008). At that time, supposedly, real estate was under "correction" in India. So, I got an 80 Lakh flat, without negotiating much.

Today, no one is willing to buy it for more than 90 lakhs. If I repatriate the proceeds today at USDINR=50, I will get USD 180K. I did not rent out the flat to keep it "new" as an investment property. Also, I paid main. at about INR 5K per month.

Who says NRIs make money if the Dollar appreciates?

NRI in US said...

Also, to add to my post above: I also paid registration charges, and have to pay capital gains tax on the "profits" of the sale in INR. This will take away another USD 10k. So, on a USD 200K investment, I have lost more than USD 30K already!

NRIs beware. If you invest in India today at USDINR=50, there is no guarantee it exchange rate will not be 60 next year. Then, you lose 20% if you repatriate. More because of registration+capital gains on sale + maintenance. Most NRIs don't rent out in Bangalore because of the hassle.

I have calculated that I need to sell my 80L flat for 1.2C to break even today. I put in on the market 6 months ago with that price. No one called! After I lowered the price to 1C a couple of weeks ago, I got one call offering 90L. I think I will take it, because I need the money urgently.

Anonymous said...

Better take the 90 lakhs.
Losing is not important.
its important that you learn a lesson. some win, some lose. thats life. doesnt mean ur a loser. life isnt about winnin n losing anyways. life is all bout being good n doin hte right thing.

At 1.2 cr no one will buy. 100%.
1.2 crore is a bigggggg amount. put urself in his shoes and even you wudnt buy for that amount. so its foolish to expect that others will buy.

Of the 100 properties at 1.2 crore im sure only 2-3 lucky ones will manage to sell it.
The problem is everyone is arrogant about lowerin price but do not understand that they are the biggest losers in the end cuz
RE downfall is coming 100%. no one can stop it.

The wise ones will sell. The fools will hold. in the end it will be a lesson well learnt

Anonymous said...

The biggest difference between the reality sold from man kind evolution to 1995 and onward is very low maintenance cost for earlier period.

The current realty market demands high maintenance that actually adds more burden on the owners.
This is the age of nuclear family. When your kids move out what are you going to do with big apartments paying all the maintenance,loan etc?
In the USA it is not uncommon couples sell their houses and shift to senior citizen apartments just because they can not live in 4 bed house by themselves.

shailesh said...

Property prices expected to fall by 25 per cent in next quarter

A large part of this debt burden is due for repayment by the end of this financial year ending on March 31, 2012 . So, certainly there is pressure on developers. In that case they cannot hold on to existing prices for ever," Sandhir said.

The increasing interest rate on loans is also adding to the pressure on the developers. During the July-eptember period this year, the debt burden went up further as interest rates rose. The RBI has adopted a hawkish tight-money policy to rein in inflation.

"In the last six months property sales in Mumbai have plummeted by 60 per cent. If we consider the Delhi NCR region, sales have gone down by as much as 50 per cent. We don't see any revival in sales without a price correction," a senior executive at Axiom Estate, a realty consultancy said.

Property brokers said the high prices are responsible for the poor sales. "If an affordable home in Delhi starts selling at Rs.80- 90 lakh then there is no difference in what we call affordable and luxury housing. A typical middle- class buyer is not interested in purchasing a property at such a high rate, even if he needs a house," the broker at Axiom Estate said.

Market experts said that those who pick up realty for investment have lost interest in the market which has led to a further decline in demand. "The rate of interest on loans that these investors would have to take to buy property is higher than the rate of appreciation," Samarjeet Singh of Agni Properties pointed out.

Anonymous said...

"NRIs beware. If you invest in India today at USDINR=50, there is no guarantee it exchange rate will not be 60 next year. Then, you lose 20% if you repatriate. More because of registration+capital gains on sale + maintenance. "

This is a very good point, but can NRIs (many of whom have sh*t for brains) actually run the calculus this way? Most of the NRIs I know are firmly in the "RE can never go down in India" frame of thinking. They would view a 15% decline in RE prices (let alone a 25% decline) as a solid buying opportunity even though they will lose money on the transaction.

I fear NRI meddling in the RE market much more than the usual suspects (black money, politicians, builder corruption, etc.).

Anonymous said...

Lot of bullshit is being written in the blog, the crappiest being from a NRI from US.

Mark my words, no NRI buys property in India for investment purposes. Why would anyone invest money in a shit third world country. For obvious reasons BBC has been elevating the position of India in their broadcasts, but you and me know better. They want to attract investment from Indian businessmen doing business abroad plus sell arms to India. The commission gained from these sales is reinvested in UK or one of European country or US. Almost all tax heavens have strong links with UK or some other EU country. US doesn't care as they play regional politics and sell their goods to third countries like ours at inflated prices.

FDI in India is mainly from indians doing golmal abroad and laundering their money.

As for real estate, definitely there will be correction in the near future but this is not going to help most middle class indians. If the price of 2cr flat drops to 1.5cr, will you buy it ? So much for price correction

Anonymous said...

NRI In US has made a investment decision which went wrong. There will always be winners and losers in this game just as millions of people in US lost houses to foreclosures.

Anonymous said...

I am an NRI in the US. I have couple crores net worth, but I am made to feel really poor when I visit India, so I decided to not go to India anymore.

People, including own family and relatives are blood suckers. Even though they may be content in life, they always like to fleece the one coming to visit them from a far away land and even give you much less than what you deserve from any inheritance. It really makes me realize that these people are rich only on imaginary paper and and poor morally/ethically as well as corrupt, evil, deceiving, etc.etc

I can live here in the US in my own peaceful way. TO HELL WITH BHARAT...I hope all the MFs rot in their own stink..

polt said...

@Anon - "Most of the NRIs I know are firmly in the "RE can never go down in India" frame of thinking."

Not just NRIs. Lots of folks on this blog and others in India think that RE is a one-way bet.

DhImAn said...

Mark my words, no NRI buys property in India for investment purposes.

Obviously you've never heard of taking out a HELOC To buy property in India - a very common investment "strategy" of NRIs.

Why would anyone invest money in a shit third world country.

There is only one reason to invest money anywhere - in a shithole, in a crappy country or anywhere else, and that is return.

If the RBI maintains a soft INR peg to the USD, then all you do is find a high yield INR instrument such as RE, convert your USD to INR, get a yield of at least 9% on a fixed deposit or much more on RE, then repatriate the INR in USD while pocketing a tidy return.

The alternative is to get 1-2% on your USD deposits in the US. What fool prefers this alternative?

Anonymous said...

"Obviously you've never heard of taking out a HELOC To buy property in India - a very common investment "strategy" of NRIs."

Sir, what have you been smoking? There isn't any equity left in US RE unless you purchased 10 years ago with a fat downpayment.

"If the RBI maintains a soft INR peg to the USD, then all you do is find a high yield INR instrument such as RE"

Again, what are you smoking? Indian RE doesn't have high yield, in fact it has very low yield, no more than 1-2% when you factor in the taxes, maintenance, service charges and agency fees.

Anonymous said...

Buying property in India is an easy process but selling and repatriating money in US $ is a headache. Whether you want it or not, you will end of getting part of proceeds in Cash. After paying capital gain tax and various bribes plus repatriating black money through hawala, you may end of on the radar of homeland security or equivalent of it in other countries, one can land in lot of trouble. This is what happened to a friend of mine who sold his investment property, liquidated some ancestral inheritance and tried to bring money through banking and other channels. He is fighting a loosing legal battle, part of his bank accounts frozen, lost his job, had to sell his house to pay legal fees etc etc

Anonymous said...

"This is what happened to a friend of mine who sold his investment property, liquidated some ancestral inheritance and tried to bring money through banking and other channels. He is fighting a loosing legal battle, part of his bank accounts frozen, lost his job, had to sell his house to pay legal fees etc etc"

@Anon above,

All what you have posted is true. But this is not how NRI's think. I move in NRI circles and the two dominant prevailing views are:

1. RE prices in India can only go up.

and

2. Buy now or forever be left out!

Even the fools who lost their shirt on the 2008 Developed World (ex. Canada and Australia) Housing crash swear on the invincibility of Indian RE.

Go figure.

Anonymous said...

Can someone tell me why anyone would send money to India?

India is a big black hole...a roach motel...you can check in but can't check out...if you send money and don't expect any return..just loss.

NRI whould not send amy money to India and expect to make money with INR going down...govt. spends more than it taxes, people import more than they export..what is there to like??

REBear said...

Ok folks, here is a live example. I just came to meet my NRI friend(Rajesh) working in Charlotte and when I reached the house where he is staying, I saw him coming with a broker and he filled up form in Paramount's underconstruction project in sector 135, Noida for 70 lakh(1650 sq ft). I was shocked and dropped enough hints in front of the broker that do not hand over the cheque to broker, but looks like it was too late as he had made up his mind already. He plans to take a personal loan in US to fund this purchase. He believes dollar will not cross 52 INR as it rebound from this level last time. And as I am writing this, he is filling the form and writing a cheque :(

DhImAn said...

@Anon of 12:47 PM

Sir, what have you been smoking?

Sadly and quite obviously not the same powerful stuff as you.

There isn't any equity left in US RE unless you purchased 10 years ago with a fat downpayment.

Umm, plenty of HELOCs are still being written, so the market seems to be disagreeing with you.

Indian RE doesn't have high yield, in fact it has very low yield, no more than 1-2% when you factor in the taxes, maintenance, service charges and agency fees.

You can't be serious - at least NRIs investing in Indian RE don't seem to see it that way.

Also, I'd like to draw your attention to the word "strategy" in my original post. Please think for a moment why that word was in quotes.

Anonymous said...

"Umm, plenty of HELOCs are still being written, so the market seems to be disagreeing with you."

HELOC's may be written, but you have to have HE in order to be eligible for a HELOC in the first place. If you purchased a house over the past decade, unless you did so with a fat downpayment (unlikely for recent NRIs), you don't have a heck of a lot of HE in the game.

"You can't be serious - at least NRIs investing in Indian RE don't seem to see it that way."

Oh I'm perfectly serious. I can't help it fact conflicts with NRIs' notion of reality. Yields are tremendously low in Indian RE. Everyone knows this. It is obvious that you are pretty uninformed on the whole issue.

Anonymous said...

Anon @ 6.59am

Even bank deposits generate close to 10% in India.

And BTW, you are just talking about rental returns. I think the reference is on the total return that RE generates in India - Rentals (pretty low now) and capital gain (returns here are doubtful though)!

DhImAn said...

Everyone knows this. It is obvious that you are pretty uninformed on the whole issue.

Uh, OK, if you say so, Professor.

First, HE is simply an appraisers valuation minus the loan balance. While the loan balance is constant at a point in time, the appraisal is an eminently fudge-able number; and thus people are still getting plenty of HELOC money, HE or not.

Second, yield doesn't necessarily have to be rental, you know. And investment vehicle doesn't necessarily have to mean buying retail flats.

There are people lending money to builders for instance. Others buy stock in companies that lend to builders, or companies that lend to buyers.

Then there are funds that do the same and there are people who lend to those funds...

Every investor on the street knows this; perhaps you, high up in your academic ivory tower don't?

DhImAn said...

govt. spends more than it taxes, people import more than they export..what is there to like??

You forgot, an extremely corrupt government in bed with the media, special interest groups and who else not; trampling on constitutional rights of its citizens; with a tremendous gap between the rich and the poor; often bigoted and racist; really stinking dirty where the poor live, and a whole lot more.

Sounds like good ol' USA to me, hahaha.

Anonymous said...

And your point is??

USD is the world's reserve currency..they can print as much as they want...can India do that??

Anonymous said...

Last month, I saw two foreclosure properties in a "high end" building in Bangalore. Both had NRI defaulters, who had borrowed from India banks. The bank was trying to sell the properties with little luck. The NRI obviously did not care about his credit score in India, for the next few years.

What happens to the property if the NRI borrows with a US loan. Can the US bank foreclose on an Indian property?

skeptic's ghost said...

The US has been zero percent interest for 3-4 years now and "experts" expect it to last 3 -4 more years (EU too will start printing presses soon unless Germany decides to break the back of the world economy)
This means that any NRI expendable income is neither going to grow nor going to be useful as most other asset classes are very risky or losing money.

Another reason super rich NRI's in US buy in India is

1)death tax/Estate tax(tax on your assets when you die and your descendant or loved one get your property) is nearly 35% (as of now its for above 5million$ but earlier limit was $1 million)

2) if you dont get Green card or citizenship - you can always settle back home in India and at that time you can use either the property you have invested in or sell it and use it for some other purpose on return (this is more for Gulf nation expats)

3) many NRIs want kids to study in India and use the money parked as a college fund

4) Parents, siblings, relative support - many NRIs will pass on the property to someone near and dear to take care of - (however dubious that may be)

Again I reiterate that ready possession property prices will not budge (they will stagnate at the most). The black swan moment for indian Housing (not commercial only housing) will always be political or social turmoil or major war.

NRI said...

NRIs:

1. 1st generation Indians (people born in India) have some nostalgia and spend their retired life in India

2. 2nd generation Indians: Treat India is a third country, feel sorry for the poor people and throw some donations and feel proud

3. 3rd generation Indians: India is a laughing stock, want to enslave Indians and hate to admit that their origin was from India

Why would any sane NRI invest in India. If any investment is there, it is just to help their relatives, not for gains
India is a shit country and will remain so until people get educated

NRI said...

http://m.timesofindia.com/PDATOI/articleshow/10808848.cms
Even builders are backing away from investing. So much for the India RE growth story.
I am an NRI and I have money to buy 1 commercial property and 2 residential property. I was planning to move back in 4 years. Now I am considering not moving back to India. India is very corrupt and I don't want my kid to grow up in such a culture. There are many Indians in USA and they maintain the culture even though they are so far,
Simple example: I had asked my accountant to file my tax return. He had sent me bogus receipt. I had not received the refund for 1 year. Recently when enquired through a different accountant, I found out the my return was never filed. My account is asking Rs.20K now as bribe to get my refund. I got my refund through other channels and I will return the favor to this ass****.
This happens at every level and you could lose all your savings especially when buying RE. I was so prepared to move back but these kind of experience makes you realize that India has many thugs and you would rather keep your family safe in USA.
As some of mentioned, I was one of the NRIs waiting on the sideline to buy when market dropped but I am completely out now. I am buying in USA as it is so cheap and at 4% mortgage, it's like icing on the cake.

Anonymous said...

@NRI above
I was planning to move back in 4 years. Now I am considering not moving back to India. India is very corrupt and I don't want my kid to grow up in such a culture

It is going to get nasty in the US and other European countries for immigrants very soon, I just don't see how the local population will be accommodating to H1 and Green card holders when unemployment is at 20%+
Immigrants always get the first boot when times go bad.

You might think of picking some low visibility country like Costa Rica in case you don't wanna come back to India.

Anonymous said...

Living in US, I can definitely say that in last few weeks, Builders have been advertising their projects like crazy. I believe they are hoping that folks coming to India in December, make their purchase. I think they might be in for rude awakening. Though NRI can potentially afford homes, I think volumes are going to be way off. Earlier hope was on Diwali festive season, which went dud in terms of sales. By January, builders will realize, NRIs are not buying in droves as they used to in past, and that will be the last straw.

Even for NRI's the prices that are quoted in major cities are outrageous, especially in city limits. The only affordable prices seems to be in outskirts. I don't think NRI's are interested in buying home 60 km away from city. In 2nd and 3rd tier cities, most NRI can afford plot and can build their own house. I don't think in those cities they want flats with super built up.

We will know by January....

NRI said...

USA law enforcement is very good. They have gone after presidents to uphold law. Show me if any Indian prime minister has been prosecuted so far. Deve Gowda has looted Bangalore and has made money for generations to come. Still no one in tax dept dares to question him.
If it comes to unemployment, I would trust US government to safeguard my family. In India, you could get screwed even if you are right. Just that the other person might know some big politician.
God forbid, if you end up buying some politician's land, their grand kids can file a lawsuit and you are screwed. India's law enforcement and rules are weak and outdated.
Even if situation gets worse in other countries, it will be temporary. You can always visit India for few weeks and return back if you have green card.

Anonymous said...

@NRI
you have not studied your history properly, in fact forget history, go back to 92 LA riots, the city was a lawless haven for 10 days back then. Good luck trusting the government for your protection when most counties are actually cutting down on police due to lack of money.

US is better for immigrants compared to Europe for cultural reasons but I wouldn't bet my or my kids life on it, esp. in a country where everyone has a gun.

Things can go downhill fast and quick.

Show me if any Indian prime minister has been prosecuted so far

I am not even bringing India into the equation, it's a shit hole and that's a well known fact. I was talking about other countries which are low on the visibility radar.

NRI said...

@anon 9:33
you are talking about 1 incident in 1 city. I am talking about law enforcement across the entire nation. If you want to talk about lawness haven, then we can start with hindu-muslim riot in gujarat. People were burnt alive.
USA definitely protects common man more so than India. India can be a super power but we are not even close right now. Corruption and politics is killing the growth. 99.9% of the politicians care about their pocket than society.
According to many on this blog, RE is being driven largely by black money. You can read this as people with power. Even if you own a property, you'll have to sell it to these crooks who can give you exorbitant price or they can force you into selling for peanuts because of their power. Common man is screwed either way, especially naive educated people.

Pawan said...

We are not the only insane people in this world!

http://globaleconomicanalysis.blogspot.com/2011/11/house-wont-sell-no-problem-simply-raise.html

MumbaiPav said...

Will property prices come down now?

http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Will-property-prices-come-down-now/articleshow/10792400.cms

Anonymous said...

@NRI
I mentioned one event because that's what is possible within one comment.

Anyways I just stated the truth.US is no safe haven, it's a country in terminal decline, net energy is declining in the world, in such a scenario US with it's zero public transportation infrastructure would be worst place to live in IMO.

Some of the smaller south american countries or east asian economies would be a better bet. Canada iceland, would be a good choice as well as they have a lot of natural resources.

Anonymous said...

Most 1st and 2nd generation Indians want to own a home in India, just in case problems develop in places where they have settled in and need a place to fall back. For immigrants USA/Canada are safe countries as these countries have been built on immigration. South American countries are dangerous as they will never accept you as one among them, specially for religious reasons. Same applies to Europe where skin color rules the society.

India will always welcome NRIs and this belief makes many NRIs to have a second home in India.

Everyone knows that India is corrupt, shithole, overcrowded etc etc, but after-all it is home

BackInDes said...

Most 1st and 2nd generation Indians want to own a home in India

You are absolutely right my friend, and as an ex-NRI, I can second that.

However, why anyone would want to buy such "security in homeland" in our sh*thole cities like Bangalore and Mumbai, is beyond my comprehension. I recently made a trip to the beautiful hills of Kerala, and saw the mansions on the hills built by NRIs. Some of the more modest houses, that are probably built by cooks and chauffeurs in Dubai, will still beat your 1.5 CR, 3 BHK in Bangalore "uppity code coolie society" hands down. And each house cost about 35-40 L.

In the outskirts of Bangalore itself, you can buy a decent 5000 sq ft "developed plot for about 10 Lakhs and construct a 2000 sq ft 4BHK for another 30 L. So, for 40 L, you can have your own land, decent house and society features such as security, park and swimming pool. Any NRI that buys in the central areas of a city and does not have to commute to a job, is either stupid or crazy. My guess is both.

Anonymous said...

@BackInDes

NRI's buy property in cities for the amenities and to be close to their relatives/friends. Our cities are congested, no doubt but one can avail all the facilities just like western countries.

The hgh cost of real estate in cities like mumbai, bangalore is not driven by NRIs. Not even 0.01% is purchased by NRIs. The investors, speculators, buyers are all local people with loads of black money. Until and unless this black money menace is solved, the real estate prices are not going to fall

Anonymous said...

However, why anyone would want to buy such "security in homeland" in our sh*thole cities like Bangalore and Mumbai, is beyond my comprehension

My point exactly, I am saving for the day when I can buy a simple house in the mountains in Uttarakhand or somewhere in the woods in Himachal, real estate speculation be damned. What's coming will be worse than 1930's and if you have studied your history well you'll know that a lot of rich people got wiped out during those years. All this property in the cities will be rendered worthless when the economy tanks.

samix said...

Here, the Real Estate crash has been kicked further down the road

http://business-standard.com/india/news/rbi-announces-bond-buyback/455758/

RBI is printing up 10,000 crore rupees from... yes...tada! thin air.

I am just wondering if this will go to bail out their builder friends!

People working in India and paying taxes, eat your heart out...

Anonymous said...

Rupee has depreciated to Rs.52.22 to the $ this evening. It looks it will not stop until RBI intervenes. But something seems to be amiss between Finance Ministry and RBI. Is there is revolt brewing??

Anonymous said...

"RBI is printing up 10,000 crore rupees from... yes...tada! thin air."

10,000 crores? That's chump change. 10,000 crores will get you around 10 villas in Mumbai.

India is a land of Crorepathis.
just own a house in any 1st or 2nd tier city and you are a Crorepathi. No questions asked. As simple as that.

India is a very, very, very wealthy country indeed.

Anonymous said...

"Until and unless this black money menace is solved, the real estate prices are not going to fall"

This topic has been beaten to death and thoroughly debunked in this thread.

BLACK MONEY KEEPS INFLATION AND ASSET PRICES LOW. We should all bow down and whole-heartedly thank the generators/hoarders of black money. By preventing black money from entering the banking system, these folks are preventing the "multiplier effect" of fractional banking from operating and increasing the money supply by up to 10 times the amount of the black money.

Pawan said...

"Until and unless this black money menace is solved, the real estate prices are not going to fall"

Black money may be a factor but not the driver. In Gurgaon I have seen properties where cash demand is 80% of the property value (for plots) to properties where resale happened with only 15% paid in cash (an under construction flat where the buyer himself had paid about 50% till that time).

Barack said...

BLACK MONEY KEEPS INFLATION AND ASSET PRICES LOW. We should all bow down and whole-heartedly thank the generators/hoarders of black money. By preventing black money from entering the banking system, these folks are preventing the "multiplier effect" of fractional banking from operating and increasing the money supply by up to 10 times the amount of the black money.

My friend, I wholeheartedly agree with you. Black money has many benefits.

It cured my alcoholism. And recently, it has cured my gonorrhea and syphilis. You can also try. First get infected. Then contact me at barack@whitehouse.gov

Anonymous said...

I was talking to a friend of mine wo knows the President of some builder association. He mentioned that the builder lobby is very strong and united. They would go any lengths to protect apartment prices. If one among them gets stuck in a project with unsold inventory, they will offer monetary or sales support for him to tide over the tough time in return for not letting the prices slip. The rate is all important and the builders know well to control it. If no one sells below a price, the ones who want to buy will be "convinced" about the rigidity of the price.

I like the other ideas in this comment thread: You can buy a lot of realty that is not impacted by these builders. While you may have to go out of the city by a bit, it is still possible to afford good land and construct a decent place at a fraction of the cost!

Anonymous said...

"The rate is all important and the builders know well to control it. If no one sells below a price, the ones who want to buy will be "convinced" about the rigidity of the price."

My friend, prices can be kept artificially high (even by builder bastards) only for so long. Eventually, powerful arbitrages and market forces will catch up and force prices lower as it will no longer make economic sense to keep prices high. If the builder bastards want to maintain the prices at their current level at 15% interest rates, please let them do so for as long as they please. Let's see how long the market lets them get away with it.

Anonymous said...

The weakening INR has made the Builder-goons' attempts to hold the line largely futile and irrelevant. They can maintain their nominal prices all they want in their fantasy world. Meanwhile, in the real world, RE prices are sinking like a stone when measured in real currencies.

Pawan said...

The builder lobby is very strong and united. They would go any lengths to protect apartment prices.

Unfortunately they don't own those apartments they are building. They are all mortgaged with banks/FDIs etc. I was reading an article which says that FDI guys expect an IRR of 30% on the money they invest in a project. This means that if they are not able to sell the project in one year, next year they must sell at 30% higher to get the same IRR and so on.

Obviously anyone who expects any investment to deliver 30% YOY for many many years is insane.

And finally, whether you like it or not, developers wont lose much as they have no skin in the game. Banks and FDI guys will take the big hit.

Anonymous said...

Rupee at 52.7

At this point it's behaving like a self fulfilling prophecy, as rupee keeps falling, people keep rushing in to buy dollars.

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

Folks expecting the RBI to do something will likely be disappointed. The currency markets dwarf the RBI's capability, and if the markets think the rupee should weaken then it will. The RBI will merely be wasting its dollars trying to prop up the rupee.

India's economy is driven to a great extent by external investment and domestic consumption. And now the money is flowing out. Who knows, we may be seeing the start of Asian Financial Crisis 2 (1 was in 1997), though the floating rupee might help.

Pawan said...

You talk of builders not selling their properties cheap? They are not able to save their companies.

http://www.moneycontrol.com/news/buzzing-stocks/parsvnath-developers-cracks-further-sheds-393-days_621826.html

Anonymous said...

A month back, I wrote about the unofficial currency market in mumbai and scrambling for $. Today's (nov22)
selling rate in Chira/Bhendi Bazar is 56 and there is a wait period before you could lay hands on it. Buying rate is anywhere between 53 to 55 depending on the shops.

Due to the shortage, people are accepting gulf currencies like dubai dhiram and qatar/ saudi riyal. Rumors are that big dealers have imported large amount of such currency and is being traded in the market.


Speculations are ripe that by March 2012, INR is going to hit 60

For those of you who play stocks or real estate, this is an opportunity to make some cash as the proverb says ' Make hay while the sun shines'

Good Luck

Foreign Currency Dealer

Anonymous said...

"We expect that a reverse adjustment (in the rupee) will take place when the European situation resolves itself," Subbarao, the RBI told reporters on the sidelines of an event in the southern city of Hyderabad.

WTF is happening. Are we living in a dreamland

samix said...

"We expect that a reverse adjustment (in the rupee) will take place when the European situation resolves itself"

I cant help but laugh at the resolving itself comment! Has the EU got a immune system other than a printing press, that prints more money, albeit aggravating the situation!

Anonymous said...

@ Pawan

You seem another frustrated buyer in the market! I was making a factual statement about the builder lobby - like it or not, their unity has kept prices high for the last 1.5 years keeping buyers like you hanging. Are they right in doing so? Properly assessed they would be judged guilty under Restrictive Trade Practices. Its an oligopolistic situation.

@ Anon: "My friend, prices can be kept artificially high (even by builder bastards) only for so long. Eventually, powerful arbitrages and market forces will catch up and force prices lower as it will no longer make economic sense to keep prices high. If the builder bastards want to maintain the prices at their current level at 15% interest rates, please let them do so for as long as they please. Let's see how long the market lets them get away with it."

What "arbitrages" exactly are you talking about? We barely have a stock market... where are the arbitrage opportunities against the realty market? Shorting realty stocks has been a mine-field to say the least. And crashing stock prices only forces builders to work harder to keep prices up.

BTW, builders alone are not the only interested parties in keeping prices high. Even the govt. has a vested interest here!

Lets wait and watch for the straw that breaks the camel's back. Cheers.

Anonymous said...

What "arbitrages" exactly are you talking about? We barely have a stock market... where are the arbitrage opportunities against the realty market? Shorting realty stocks has been a mine-field to say the least. And crashing stock prices only forces builders to work harder to keep prices up.

It is obvious that you are clueless about basic concepts of economics and that your blabbering is internally contradictory and makes absolutely no sense whatever. I have no time to educate you on the fundamentals of economics. In case you haven't noticed, the RE market has already crashed in real times. HARD.

And the party is just beginning...

Anonymous said...

Anon @ 7:31am

O Learned One who has no time to teach economics,

You have not answered my question. What "arbitrages" are you talking about? Do you understand the meaning of the word?

Besides, Life can get pretty contradictory - get used to it. The faster the better!

Pawan said...

You seem another frustrated buyer in the market!

Sorry to disappoint you but I am neither frustrated nor a buyer. I am just an observer.

And if builders keep the prices higher, I have no issues with that. In fact I would be much happier if they keep building more and keep the GDP growth going. That will help me make more money in stocks.

Anonymous said...

@Pawan... Fair enough.

More thought: I think its the banks and the PE money that is not allowing builders to cut prices. If these entities note a crack, banks may start calling for more collateral and PE investors may demand that the builder sell out by cutting prices further so that they can cut losses and get their principal back. Its not a very rosy picture - more of a stale mate. Cut prices and the banks pounce on you; keep prices high and sales dries up! :)

Anonymous said...

Builders give a damn to banks and other financial institutions. They are there to serve them. Either Bank officials are on the payroll of builders or they get a cut

Anonymous said...

I guess banks giving out 10-11% interest is not cuz of inflation.
Since majority is given to RE we are gettin such good interests.
If RE crashes im sure the interest will go down as the ratio of the prices goin down.

So if RE prices go down 20%, even banks may lower the interest earned frm 10 to 8%

Anonymous said...

I am talkin bout Fixed Deposit Interest which is currently at 10%

Anonymous said...

"I guess banks giving out 10-11% interest is not cuz of inflation.
Since majority is given to RE we are gettin such good interests.
If RE crashes im sure the interest will go down as the ratio of the prices goin down.

So if RE prices go down 20%, even banks may lower the interest earned frm 10 to 8%"

Bhaiya... Banks raise interest rates based on RBI guideline. RBI raises or decreases interest rate to control inflation/deflation. RBI will increase rates to control overheated economy. Decrease rates to underheated economy. No change to maintain status quo.

RE prices have nothing to do with Bank rates. But Bank rates can impact RE prices. Higher the Bank rates, lower the RE prices should be (ideally - in non black money economy).

Also, if Western countries start rising interest rates, we will see lots of fun in India, Banks will have to raise interest rates.

Rumors are that next year there will be rising interest rates in USA. I would love the see EMI rising in India... buy hey... dont earn white money - ask for Black money and then live worry free life.

Anonymous said...

Indian Rupee (whats that silly symbol for it) getting flushed down the toilet faster than you can say "shit'

shailesh said...

Becareful buying in Aamchi Navi Mumbai...

Buyers pay lakhs for Navi Mumbai flats that do not exist on paper

shailesh said...

Realty giants stall mall projects

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Radheshyam said...
This comment has been removed by the author.
Anonymous said...

Stocks are still overpriced but have a much better valuation than RE.

There's absolutely no reason to buy a house for investment purposes right now.

aam aadmi said...

The question is whether RBI will raise interest rates now to save the rupee or will it prioritize "growth". Elections are around the corner and the poor don't pay EMI, I say money is on interest rates being raised.

Anonymous said...

RBI will certainly will intervene and prop up the Rupee to a certain extent, after which the free-fall will start as dictated by economic conditions. The immediate future doesn't look good and therefore the Rupee is likely to loose its value against US $. My bet is that Rupee will reach 56 against dollar by March 2012. This is based on the main assumption that oil prices dont increase above $100 a barrel.

Stock market is likely to remain at the present dismal state. As for real estate, drop in prices are unlikely as most investors consider this as the safest bet in the present economic climate

Anonymous said...

"The question is whether RBI will raise interest rates now to save the rupee or will it prioritize "growth". Elections are around the corner and the poor don't pay EMI, I say money is on interest rates being raised."

Wrong. RBI has already raised interest rates a lot without making a dent on inflation. If the housing bubble bursts, then many of the poor whose livelihoods depend on the construction sector will lose their jobs. Also, many export companies will profit from a weak(er) Rupee. My bet is that the RBI will back off monetary tightening and agressively start money-printing and monetary easing a la Bernanke, China and ECB. Given a choice between losing their jobs and paying higher prices, people will always choose the former.

So Growth it is. Meaning negative real interest rates, high inflation and exploding asset prices.

aam aadmi said...

If the housing bubble bursts, then many of the poor whose livelihoods depend on the construction sector will lose their jobs

Again, exactly how many people depend on construction jobs in our country, it's a miniscule number. Same with exporters, a weak rupee is more of a headache for the government than an asset. If fuel prices go up everything goes up, it's not even a choice IMO.

Anonymous said...

"Same with exporters, a weak rupee is more of a headache for the government than an asset. If fuel prices go up everything goes up, it's not even a choice IMO."

Agreed, but what can the GOI/RBI do? They can't keep raising interest rates. Interest rates are already at record high levels. Most importantly, jacking up interest rates will have negligible effect on things like food, fuel and necessities. People don't generally borrow to buy food, fuel or necessities so raising interest rates is not going to help one iota. Further, black money is completely unaffected by inflation as it is largely outside the Banking System.

India has high inflation because of structural inefficiencies in infrastructure, sound governance, public policy, justice and law enforcement. Increasing interest rates simply won't solve these problems and make inflation go away.

Given the above calculus, the good folks in the RBI will do what comes to Central Banksters naturally: (i) print more money and (ii) lowering interest rates to negative real interest rates.

In general, a sound way to predict the direction of public policy in India is to see what is good for the people at large and then predicting that the exact opposite will happen.

In this case, the people will lose again while interest rates are lowered, money is printed and savers are raped to benefit the over-leveraged land-owning class and their political enablers.

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