Wednesday, January 18, 2012

Sobha Signature, RIP

Sobha developers were supposed to build their super expensive highly "exclusive" penthouses for "high net worth individuals". Rs. 5 Crores to Rs.10 Crores for 6800 Sq ft to 8000 Sq ft exclusive apartments. This project called, Sobha Signature, located along the congested Harlur Road, was supposed to be their best thingamagic ever.

"Our CEO is going to live here". "Think about it". "O U R CEO. He is the person who will live here" - peddled a salesman.

Turns out, there aren't enough suckers to pay Rs.5 Crores to Rs.10 Crores in Bangalore. Sobha Signature project has been shelved and will be replaced by Sobha Classic Phase II, which is a "poor man's" luxury apartments. Sobha Classic 3 BRs run between 90 lakhs and 1.15 Crores today.

May be this is the start, the super high end is bursting in Bangalore.

114 comments:

Anonymous said...

Harlur road? Isn't that the little "galli" behind springfields in Bellandur, miles from the city? They want 90 lakhs for a 3 BHK there?

For 90 lakhs, you should be able to buy an acre of whatever harlur shit they are selling. Plus a few kilograms and a few liters more.

Anonymous said...

Indians are know to be debt free most of the time compared to any western nation counterpart.

I scratch that. I say from now - Indians were know to be debt free most of the time compared to any western nation counterpart.

More debt more the affordability, this has been mantra since past one decade.

Anonymous said...

sorry about my bad grammer/spelling.. correction above 'know' is 'known'

Anonymous said...

@Anon,

Westerners were once known for their savings. After the great depression in US, people were very miserly, as they remembered being hungry .Then prosperity came for a few generations and people spent money like water-forgetting about the total debt and focusing on monthly payment only.

I fear the same is happening in India. We don't have the safety net of westerners-I wonder how it will end?

Anonymous said...

RE: "We don't have the safety net of westerners"

It seems like Indians/Chinese are doing fine inspite of their absence. Witness their Billion+ and growing populations.

Pawan said...

We don't have the safety net of westerners

Theirs is illusionary too

Anonymous said...

I guess Sobha developers must have found out that there is more to milk at lower level than 5+ crores houses.

Anyways why do we always talk about builders.. are they only ones that are selling houses on market? what about sellers? What is their status on selling houses... what are their rates?

DingDing said...

when one has a billion souls i'm sure some can be sacrificed with out a peep from the rest !

Anonymous said...

sorry about my bad grammer/spelling.. correction above 'know' is 'known'

We 'know' that :)

BTW Sobha CEO is Doba CEO
Funny line - Imagine CEO is gonna LIVE HEREEEE! lol

Who cares dude. We dont even know who the CEO is. haha

polt said...

Off topic, but a worthwhile read.
"China’s property sector goes from bad to worse " - http://ftalphaville.ft.com/blog/2012/01/18/838191/chinas-property-sector-goes-from-bad-to-worse/

In one city, second hand home prices fell at 4.9% per month. I guess this is why many Chinese home investors do not even rent out homes. That way the home looks new when sold.

BTW, does anyone know how much premium a new house has over a used one here in India? I.e how much lesser will an apartment that has been lived in say for a year or two cost when compared to a unused apartment in the same building?

Anonymous said...

where does it leave the people who had booked apartments in this project ? What about approvals etc. ? Surely an 8000 sqft flat worth 10 crore cannot become a 3BHK worth 1.1 crore over night ? What magical interiors were they going to add to justify 10 times the price ?

Anonymous said...

where does it leave the people who had booked apartments in this project ? What about approvals etc. ? Surely an 8000 sqft flat worth 10 crore cannot become a 3BHK worth 1.1 crore over night ? What magical interiors were they going to add to justify 10 times the price ?

It is easier to sell 1000 sqft for 1+ crores 8 times than to sell one for 10 crores. Profit margins remains the same.

Builders are not stupid.

Anonymous said...

Shrinking spaces leave Mumbai gasping

http://timesofindia.indiatimes.com/City/Mumbai/%0A%09%09Shrinking-spaces-leave-Mumbai-gasping/articleshow/11548789.cms

No wonder malls are always crowded in metro cities.

Anonymous said...

Rupee drop makes realty attractive for NRIs
http://timesofindia.indiatimes.com/nri/other-news/Rupee-drop-makes-realty-attractive-for-NRIs/articleshow/11532454.cms

Those who have earned well and saved, are likely to return with OCI card retaining their foreign nationality, as NRIs have started facing race/culture related problems in these countries. If one owns a home in Bangalore, the living is luxurious and one can avail better amenities than western countries.

Now the returning NRIs are just a trickle, but once the flow starts housing is going to be way beyond middle class people.

Tough days are ahead for our bext generation

Anonymous said...

If one owns a home in Bangalore, the living is luxurious and one can avail better amenities than western countries.

Have you been to western countries and what they have to offer as amenities. Clean water, open and planned roads, infrastructure, speed of information, laws, parks, etc... Don't mention something you don't know.


Tough days are ahead for our bext generation
Next? It's already tough for current generation. Who can afford 1.5+ crores house?

RealityFool said...

I dont know If I am fool and missing the boat. Sopha is building independent villa near my village marketed as city is reachable in 15mins.

Prices starting at 90lakhs.
well as far as I know my city is Tier 2 city and not many Software companies.

With 90lakhs in bank 7% gives 6,30,000 and one can rent a house for 10 thousand and enjoy the life.

I dont see any other major IT company planning to open their branch in my city at this time. All they have is call center jobs.

How on earth this price will sustain?

God only knows! Why people buy at these prices.

Anonymous said...

Can IT jobs can help to pay EMI for crores? you must be kidding.

RealityFool said...

@1:40 PM
Then who are these people going to live in my backyard? I am so curious.

I think software engineers both husband and wife working are taking the bait. Or may be NRI couples intelligently invest to double their money.

I am worried about my son's future. May be he has to convert and marry four women and all five has to work in IT just to buy a house, that too in my backyard?

punter said...

sobha is a front for middle east money coming into india illegally. I think its actually routed thru the cayman islands, since its a publicly traded company. An eyewash to say the least. LOL

the funny thing is...over the last 10 years every l'il dinky youth in india talks, walks and acts like a millionaire. One has to just take look at my driver to understand. He is an undisputed authority in RE matters.

What do I know...

Sarjapur was farmland like 10-15 years ago with no proper access from any part of the city. bangalore south officially ended at Silk board circle. Beyond that was the wild west/ (sarc on!). Snakes, swamps, pigs and dacoits.

Anonymous said...

Ref:
God only knows! Why people buy at these prices.

Good question. Most buyers are from north India who consider Bangalore is the best place in India. It is true compared to northern cities like delhi, lucknow, calcutta etc. Most of these buyers have cash money and dont care the location as long as it is close to Bangalore

Anonymous said...

@anon 6:01: bangalore is better than delhi ? really ?! apart from the weather, what else does bangalore have doing for it ? have you seen the infra in delhi ? apart from malls, what does bangalore have on offer for recreation ?

Anonymous said...

@Anonymous above

Delhi is a hub of criminals. Not a day passes without hearing about murder, rape, dacoity, kidnapping, child rape/sodomy. It would be scary to live in a city like Delhi though the city has better infrastructure as it is the national capital.

Most criminals in north India are either from Bihar or UP. This makes me wonder if there is something seriously wrong with the education system of these states.

Anonymous said...

Basically you live of someone's living or they will live out of yours. That's law of nature. You have to see where you fall in food chain.

Don't be surprised when lower level eating upper level to be on next level.... that's how things work.

Are your skills and talent more important then others. Corporations poach best talents... all you need to know what is your worth and then demand for that worth.

If you feel you are RE bull - then go for it. If you feel bear then rent and be happy. But please take decision and be happy!

skeptic's ghost said...

Renting is fine if you are single and don't want to raise a family OR if you are married and don't care about your family. If there was no incentive to home ownership no one would ever buy a home.

The logic of whether you need to own your home or not is somewhat same as to whether you want to own a high end car or not - You can continue to use public transport or taxi or even walk.

Home ownership brings stability and sense of accomplishment. Other than that it a hedge against hyperinflation and uncertainty. Owning a home was never supposed to be an investment but sadly it has become one and has caused the bubble.

Given how hard it is to procure land and build your own house in most of India (even in villages you cant buy a 2000sqft plot for less than 20 lakhs) - it is but obvious that the effect has created the gigantic bubble we see.

I still believe that Japan and USA bubbles of 1989 and 2006 were different than India's and China's bubble from a demographic standpoint because these 2 nations the population was near stagnant and urbanization had already peaked decades before these bubbles.
Again within the 2 biggest bubbles of China and India there is significant difference in the type of leverage and financials of the bubble and the methods employed to clear existing inventory.

So the consequences of De-leveraging will be drastically different on a case by case basis for each bubble.

Many commenters here have made excellent points have been made in this blog - but no one seems to be certain how the deleveraging will happen.

Many readers even might feel that the bubble is technically never going to pop.

I am happy that Vik has maintained this blog as an accurate measure of sentiment throughout the peak of the bubble.
Someday this blog will prove as a good record.

Anonymous said...

Instead of the glossy photoshopped images for the pamphlets, why does the government not make printing actual pictures of the location mandatory.

Anonymous said...

Renting is fine if you are single and don't want to raise a family OR if you are married and don't care about your family. If there was no incentive to home ownership no one would ever buy a home.

Rent if:
- Buying is far more expensive than Renting. Would you buy a car if you had option to rent a cab everyday for fraction of buying price ?

- Un-Affordability - That is why we have people in slums.

- Job relocation. Why tie liabilities when moving is part of your life.

- Buying a house without financial sense makes no sense of accomplishments. Credit bubble makes everything possible. Today one can buy jewelry on credit. Infact buy anything on credit. RE is the place where Indians think credit will payoff... but who they don't know.



The logic of whether you need to own your home or not is somewhat same as to whether you want to own a high end car or not - You can continue to use public transport or taxi or even walk.

High end car is not necessity, Shelter is. What is next- all doctors charging 10 lacs for special treatment... schools charging education arms and legs... how would you feel? Some necessities of life have to done in good faith for betterment of humanity and economy growth. See how all these turned out in USA. Health care, education (student loans) are the most expensive...

skeptic's ghost said...

Affordability -

When I meant rent if - I meant renting for people who can afford but are waiting for prices to drop OR waiting for interest rates to drop.

Most middle class Indians are not devoid of shelter. Anyone in their 20s and 30s now and working in cities/overseas have some sort of property via parents. Also since 1975 most of us have only one sibling and the family assets are thus not dispersed.
If your case is different (better or worse) then its by circumstance


Regarding shelter -

Historically ownership of property has never been affordable. This is based on both the market dynamics (demand, supply, demographics) and policy of governments (land availability, amenities, construction resources/commodities)

When prices fell, credit dried up very fast and when credit was easy prices rose too quickly.

Today, slums are exploding with people because there is a never ending flow of people to cities from rural areas. There is a never ending flow because of cheap chemical fertilizers allow mass food production, vaccines/meds to increase life expectancy and no enforcement of family planning.

This a monumental policy failure which started much before independence.

Anonymous said...

Instead of the glossy photoshopped images for the pamphlets, why does the government not make printing actual pictures of the location mandatory.

----------

or at least can they make the people look Indian :-)

Anonymous said...

What is wrong in having white people in pamphlets? When you like white cheer leaders for IPL?

Anonymous said...

There is nothing wrong if they print photos of half naked white cheer leaders. Problem is they print photos of white males in suits on pamphlets.

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

Today, slums are exploding with people because there is a never ending flow of people to cities from rural areas. There is a never ending flow because of cheap chemical fertilizers allow mass food production, vaccines/meds to increase life expectancy and no enforcement of family planning.


Do we want people to die so that we can enjoy a comfortable existence ? imagine someone talking about you like this. Forgive me but this reeks of arrogance, who are we to decide life and death and treat human beings like objects ?

Anonymous said...

RE: "See how all these turned out in USA. Health care, education (student loans) are the most expensive..."

The US is a basket case. Richest country ever in the history of civilization with a wealth distribution of a banana republic.

Yes, there are hungry, homeless and slums in US as well.

US = Total waste of a good idea.

When it goes down, it will have nothing +ve to show for itself and quite possibly will be the reason for the destruction of our planet (nuclear war or climate change)

Anonymous said...

"Have you been to western countries and what they have to offer as amenities. Clean water, open and planned roads, infrastructure, speed of information, laws, parks, etc... Don't mention something you don't know"

Don't gloat about something you don't know. All that you boast of about the Western countries is achieved at a tremendous environmental cost in the rest of the world. Yes, the West has stopped drilling for oil or mining for minerals or engage in hard core manufacturing in their own backyard but guess what, they've outsourced all this dirty work overseas.

US alone consumes 25% of total energy resources while only having 5% of world population.

You can keep your own house clean and allow the garbage to pile up on the street corner and you will be fine with that mentality for a while but thankfully, Mother Nature doesn't respect any man made boundaries.

Pollution from Chinese factories is hitting the US West coast and their children are suffering from breathing disorders.

Climate change is causing major hurricanes and storms that are impacting everywhere including US.

And it won't be long before Western countries are flooded with (pun intended) environmental refugees whether they choose to accept them or not.

Karma's a bitch and the West is about to be rocked.

Anonymous said...

Based on facts and not wild speculations, both the EU and the US are about to collapse. Together they form the world's largest consumer base. When we collapse and due to the interdependence of developing and developed economies under the term "global village" the rest of these economies will be dragged in. Italy is for the first time in her history now governed by the EU. Italy is governed by those who do not speak Italian. This has never happened to Italy before and the rise of Fascism in Italy is happening. This is major because the Italian economy is one of the larger economies of the EU. This article deftly avoids the collapse of two huge markets and predicts India's growth. It is akin to the sinking of the Titanic where the upper decks have a few more minutes to live than the lower decks. It would not matter what part of the world is predicted for growth for when the EU and the US do collapse we will drag all the other developing and developed economies with us. The only survivors will be those so backward that they are yet to be connected to the world market.

Anonymous said...

Re: "What is wrong in having white people in pamphlets? When you like white cheer leaders for IPL?"

Its not about color. It about the photoshopped images which paint a completely wrong picture to the customer. Does it happen in US or any other first world country? Photoshopping the images makes even a **it place look like the coastal Florida with nothing but greenery for miles and birds flying in the blue sky. If you come to see that place, what you will have is stench coming from open drains, black smoke from a nearby industry and non-existant roads.
As long as the party lasts....

RealityFool said...

My friend(NRI- Both husband and wife earning) who wanted to buy a plot enquired and selected two sites around 4lakhs a cent in last October 2011.He visited India this December(Dec2011) and went to see the plot and finish the deal.

Now the seller of one plot demanded 8 lakhs/cent and the other seller modestly(?) asked for 7lakhs a cent.

What is drastically changed in my city in 3 months which changed the perspective of the seller to demand more money?

Nothing! Power cut duration has reduced to 4hrs from 5hrs. apart from that no new project announcement/metro ... nothing..

But sellers want 1oo% increase in just 3 months?

My friend dropped the idea of buying the plot and returned back with empty hand. He was astonished at the GREED Of Indian sellers.

Nope he doesn't want to invest in GREED.

If An NRI buyer, both husband and wife working cannot afford a plot in Tier 2 City,then who can afford?

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

If An NRI buyer, both husband and wife working cannot afford a plot in Tier 2 City,then who can afford?

Good/interesting question. I am NRI, visited Mumbai last year. Could not afford real estate, but my friend in Mumbai, Resident Indian bought house. Also my relative Resident Indian (husband and wife working in IT) bought a house in Mumbai.

So to answer your question, Resident Indian CAN afford.

And yes, I do make 6 figures USD earnings. But to pay 10%+ EMI on 1.5+ crores house is not my cup of tea and doesn't make any financial sense. House prices have to increase by atleast 20% to break even if it;s for investment. I say this because rental yields are negligible, so your only hope is capital appreciation.

polt said...

Prices down by 70% in some beachfront locations in AU. Admittedly these are remote locations, but the bubble there has well and truly burst.

http://www.couriermail.com.au/life/homesproperty/investors-snap-up-coastal-property-bargains-in-queensland/story-e6frequ6-1226250615239

Here too we have had huge increases in some far less desirable remote towns and villages without decent infrastructure. Wonder if we too will see a correction?

Anonymous said...

To all those who live in India, have never stepped outside even their city, but think their homes are suddenly worth Crores of Rupees, just compare to this listing.

This is house just 10 minutes away from Walt Disney World near Orlando Florida. The infrastructure is impeccable, nothing compared to whole of India. The 3 bedroom, 2 bath, 1150 sq ft on 0.2 acre lot is available for only $45,000. That translates to only Rs. 22 Lakh.

See the home listing

Before someone says, its not in right location, let me past the google maps link.

Maps Link

So today, 3rd tier city in India is expensive than 1st tier city like Orlando in US. What a Joke !!!

Anonymous said...

House Listing Link

earlier link seemed to be not working.

Funny thing, the guy in Florida is making at least $45K a year, so the house is just 1 years salary. In India, you are now talking about 10 to 20 times salary for home prices...

Anonymous said...

Funny thing, the guy in Florida is making at least $45K a year, so the house is just 1 years salary. In India, you are now talking about 10 to 20 times salary for home prices...

If you observe - House prices are not based on financial sense or infrastructure, rather prices are based on jobs, emotions and influx of population (by birth or by migrants).

Indian cities prices are fueled I think by same logic - jobs, emotions and population growth. What is growing job market in FL? how about population growth. Well, Indian are known for their emotional culture.

Anonymous said...

^ all bubbles are fueled by some logic which has some merit. But at one price point it takes a life of its own and defies all logic. No tree grows to the sky. So the price has to come back to the level which makes sense sooner all later. This will happen after most of the people who questioned the bubble start to question their sanity and start to think whether they were wrong all along. Some might even throw in the towel and join the bubble. Thats when you know the end is not far.

Anonymous said...

All these comparisons between US/Europe and India are ridiculous. RE is always local. Indians living in India have to buy in India. Unlike commodities such as copper, cotton, oil etc. which can be put on a ship and moved from one country to another, RE is entirely localized and therefore cannot be compared like this.

In India, incomes have risen along with people's purchasing power. Millions of people have pushed their way up into the middle class. Kids barely out of college are easily making more than 10K per month where their parents could barely manage to find a job 30 years ago.

In US the exact opposite has happened over the last 10 years. Incomes at the very top have risen but US middle class has seen it's share of wealth decline. Kids out of college in US are out on the streets as they have thousands of dollars in debt and weak to no demand for their skills.

An example, you wouldn't say that Google is overpriced compared to Microsoft. One is young and growing, other is getting old and declining.

Anonymous said...

"Funny thing, the guy in Florida is making at least $45K a year, so the house is just 1 years salary."

If you don't pay taxes, don't eat, consume electricity or water then yes!

Otherwise it will easily take him 10 years to pay it off if he continues to live a "normal" life.

Now add to that the wrinkle that he doesn't know if he'll be able to hold onto his job for another year or have to take a pay cut in the near future and you have the US economic situation in a nutshell...

Anonymous said...

Otherwise it will easily take him 10 years to pay it off if he continues to live a "normal" life.

and how long would your Indian guy earning 4 lacs to 10 lacs take to pay off 1+ crores?... if he is able to keep his job in long run... also if he is able to increment his earnings... also at 10%+ interest rates... also inflation of 11%+.... also competing with freshers that are ready to work more for less... also in this corrupt country... also at tax rate of 30% or more... also competing with black money...

I think this is enough for you for today.

Anonymous said...

In India, incomes have risen along with people's purchasing power. Millions of people have pushed their way up into the middle class. Kids barely out of college are easily making more than 10K per month where their parents could barely manage to find a job 30 years ago.

where is this WEALTH generating from? thin air? Think what does India do to generate wealth? What is wealth? some deep thinking is required... put some stress on your brain.

US many are rich, but they don't boast as Indians in India do.

polt said...

@Anon - "RE is entirely localized and therefore cannot be compared like this."

True if you compare absolute values. But you can compare ratios (price/rent, price/income, etc) which tend to be similar across geographies

Anonymous said...

Precisely. Have a look at this: http://finance.fortune.cnn.com/2012/01/23/china-real-estate-crash/?iid=HP_River

Nothing can justify a 1Cr+ price for a third grade property in a 3rd grade infrastructure in a place where people are openly defecating/*hitting in front of their 1 Cr+ homes with open overflowing gooey drains. If the guy in FL needs 10 yrs to pay, for the avg Indian it will take at least 40-50yrs.

Anonymous said...

Forget 1Cr+. It should not cost more than 30,40L

Pawan said...

If you observe - House prices are not based on financial sense or infrastructure, rather prices are based on jobs, emotions and influx of population (by birth or by migrants).

True. But we know that greed killed the golden goose. If housing in any city becomes unaffordable to the employees, companies will have only two options left:

1) Raise salaries and become uncompetitive and lose business to China/Phillipines/Indonesia.

2) Move to cheaper cities in India.

I believe companies would prefer option 2 than being shut down.

If IT moves from Bangalore to Mysore, from Gurgaon to Jaipur, the whole boom in these cities could turn bust.

Already schemes like MNREGA has caused a major drop in the influx of migrant workers to cities and farms of Punjab/Haryana.

I would bet on human greed to kill the golden goose again. After all who ever learns from history.

Anonymous said...

Mr. Pawan.

1) Raise salaries and become uncompetitive and lose business to China/Phillipines/Indonesia.

2) Move to cheaper cities in India.


Both of the above have started happening.

1> Read up, talk to businesses. Already many IT/ Pharma/ Call centers are opening their branches in Phillipines/Indonesia. China is somewhat like India... difficult to get business foot hold by outsider.

2> I grew in Mumbai, worked in IT in 1995. I have seen many IT companies exiting Mumbai to Chennai, Bangalore, etc... Also seen textile industries exiting... I'm sure there are many other industries that have exited. Just because Mumbai was old glory, one of the main port on east coast it still has it's charm.. but I feel it's lagging effect.. reality will soon catch up.

Anonymous said...

I grew in Mumbai, worked in IT in 1995. I have seen many IT companies exiting Mumbai to Chennai, Bangalore, etc... Also seen textile industries exiting... I'm sure there are many other industries that have exited. Just because Mumbai was old glory, one of the main port on east coast it still has it's charm.. but I feel it's lagging effect.. reality will soon catch up.

The two major industries in Mumbai are Finance and Bollywood. You are probably not aware, Mr. Pranab Mukherjee has been secretly trying to create a parallel economic center in Rajarhat (Kolkata) for about two years. The idea was to create a second stock exchange of BSE's stature in Kolkata. He forgot to take the crazy woman CM into account, which has helped Mumbai quite a bit. Mumbaikars should buy Ms. Banerjee some rossogullas for protecting their interests.

Also, the film industry in the south is financially as strong as Bollywood if not more. Just let a few Hindi movies come out of Tollywood, and then, it is Salaam Bombay for Mumbai's economy!

RealityFool said...


1) Raise salaries and become uncompetitive and lose business to China/Philippines/Indonesia.


This is happening! One of my colleague was replaced by Two Philippines IT Consultant.

Anonymous said...

Citi laying off 100 bankers in India:

MUMBAI—The Indian unit of Citigroup Inc. is restructuring its business, a move that will affect about 100 positions, as the U.S. banking group carries out its plan to eliminate roughly 4,500 jobs globally to cut costs.

Citigroup is among several banking groups that are tightening belts through layoffs and other measures to counter volatile financial markets and new regulations that ...

skeptic's ghost said...

@Samix


Do we want people to die so that we can enjoy a comfortable existence ? imagine someone talking about you like this. Forgive me but this reeks of arrogance, who are we to decide life and death and treat human beings like objects ?


Are you nuts, all I said is that population continues to explode in spite of lack of resources. Ideally people should take it easy and have less kids but sadly that is not happening. Everyone is in a ratrace to start a family so that their kids can grow up and also start a family and so on. Everywhere you compromise for the quality of life and end up in slums.

This has been a monumental policy failure by not incentivizing smaller families, haphazard family planning and planned urban growth with the marginalized having no option but to move to slums.

This is probably unique to the Subcontinent alone.

Anonymous said...

Citi laying off 100 bankers in India

What they don't tell you is that they will be promoting / hiring for same job. Chop /replace cheap on top, hire cheap at bottom.

Ask any so called senior IT manager in India. As how long does it take to find more earning job and ask a fresher today how long it takes. Fresher finds a job in less than a month, where as senior takes about 6 to 8 months.

Anonymous said...

Talking of Mumbaifucked....here is something heartwarming to the cockles of many a prospective housebuyer. http://www.dnaindia.com/money/report_mumbai-full-of-unsold-flats-prices-to-fall-15-25pct-after-june_1641072

Anonymous said...

http://finance.fortune.cnn.com/2012/01/23/china-real-estate-crash/?iid=HP_River

polt said...

From the DNA article - "Residential prices in Mumbai have risen at an annual average of 14.6% in the last 10 years, according to Merrill Lynch analysts. That is 50% more than the average price rise in the preceding 30 years. "

This means that the average price rise over the preceding 30 years was around 9.5% pa. If you consider average inflation at around 8%, you are getting around 1.5%pa. This is pretty much what the long term price histories in Western countries show. Inflation + maybe 1%.

Clearly, we are not different. This was an old fashioned "easy money" bubble. Mean reversion will follow.

Rustomjee said...

Anon above: Thanks for sharing the link :

http://finance.fortune.cnn.com/2012/01/23/china-real-estate-crash/?iid=HP_River

The numbers look eerily familiar, if you recalculate the occupancy numbers and rental yields for India and reflect three new apartment complexes I visited last month in Bangalore.

Rent of 20k a months = 2.4 Lpa
Rental yield of 6% gives price as 41L
Rental yield of 4% gives price as 50L

current selling price of apartment = 80 L

Even if the lower yield is assumed, price should correct by 37.5% at least!!!

Bangalore real estate is so "Bangalored"! Or should I say, "Phillipined" now?

Anonymous said...

Obama's State of the Union address had some anti-outsourcing talk in it. If it affects our IT story, we'll be in some deep sh**.

Pawan said...

More fraud:

http://www.firstpost.com/economy/inflation-dont-tell-us-govt-to-stop-publishing-weekly-data-193199.html

Pawan said...

Around 44% housing units under Rs 3.5mn unsold in India

http://www.moneycontrol.com/news/real-estate/around-44-housing-units-under-rs-35mn-unsoldindia_656127.html

Banks will take a big hit on their portfolios on these. However, none of the banks are recognizing this as NPA in their books as yet. And that is one reason banks are reporting wonderful results and markets are booming. Politicians are going to builders to get money for fighting elections and they in turn are forcing govt. to lower interest rates.

The govt. is trying to hide inflation numbers (previous link I posted). However, they can not hied that in the budget. Once fiscal deficit numbers are revealed, truth will be out. Montek has already indicated that govt. plans to reduce subsidies. Post elections expect diesel and LPG prices to go up and the next round of inflation. Till then, enjoy the rally!!!

Anonymous said...

IT is to remain in Bangalore. Companies have invested heavily and it is not cost effective to move as RE in India everywhere has skyrocketed.

Only way for business is to move out of India. But again that will take 4 to 5 years.. once that starts happening... I don't know what India has in global market in big way.

Anonymous said...

it seems that sahara is going to be the first big company affected by real estate bust.

http://www.firstpost.com/business/to-return-ofcd-money-sahara-will-have-to-sell-properties-193302.html

Anonymous said...

In India we all talk big of IT creating huge number of jobs and making everyone rich. I was talking with a CEO recently with large outsourcing operation in India for last 10 years. According to him, in those last 10 years, the real benefit of IT operation out of India, is just real estate appreciation. The India unit has so much attrition, high salaries, bench time, training and other expenses, low productivity that it is very difficult to make money out of project executed from India. On top of it billing rates for offshore operation has come down in last few years. I personally get amazed by billing rates quoted even by big companies like Accenture.

So don't get surprised when companies start packing up and moving to other countries like Phillipines....

Anonymous said...

I was talking with a CEO recently with large outsourcing operation in India for last 10 years. According to him, in those last 10 years, the real benefit of IT operation out of India, is just real estate appreciation.

Did you ask CEO how much salary, benefits (stock options), perks and bonuses he withdrew in last ten years. Where did all that come from ? RE appreciation?

Also, are they planning to move IT operations out of India if they are not making money in the business? Why bear losses? anything going to change going forward?

polt said...

From Pawans post - "http://www.moneycontrol.com/news/real-estate/around-44-housing-units-under-rs-35mn-unsoldindia_656127.html"

If this is indeed true, I think we can safely put an end to the huge population hence huge demand hence RE will not fall argument.

The original article indicated that high end apartments are not being sold. Now we see that houses below 35L are also languishing.

Anonymous said...

No worries. There are lakhs of people waiting on sideline to purchase RE if it falls even 40% from current price.

Builder does not lose anything, under construction development will stop further building, buyers get what they paid for (partial). All settled and happy.

Fun is when fully paid RE is devalued else everything is hawa mahal.

Anonymous said...

"Obama's State of the Union address had some anti-outsourcing talk in it. If it affects our IT story, we'll be in some deep sh**."

Don't worry. The powerful NRI/IT Indian lobby is in bed with the Democratic party. If the Dems and US NRI elites were any closer, you would need to hose them down with cold water to separate them like dogs in heat.

The Democratic party is hand-in-glove with NRIs and the massive "Indian-American" community in the US. Every Diwali or every other Hindu festival, Democratic politicians line up to visit temples to suck up and generally make a fool of themselves.

It's all about campaign contributions (aka bribes). That is why no administration in the past 20 years, whether Republican or Democrat have restricted immigration laws even in the teeniest way even in the middle of major recessions. The NRI lobby is just way too powerful.

Anonymous said...

"Around 44% housing units under Rs 3.5mn unsold in India"

Can anyone please tell me where you can purchase units for Rs. 35 lakhs in major Indian cities? There are these units available in places like New Delhi, Mumbai, Chennai? Really? Where?

I would love to buy a housing unit for 35 lakhs in any major city. If you have any information about these 44% unsold homes less than 35 lakhs, please let me know.

Anonymous said...

Banks have started cutting jobs. Soon IT will follow

http://economictimes.indiatimes.com/news/news-by-industry/jobs/global-banks-citigroup-hsbc-bofa-merrill-lynch-and-barclays-cutting-jobs-in-india-at-ruthless-pace/articleshow/11633779.cms

Anonymous said...

"I would love to buy a housing unit for 35 lakhs in any major city. If you have any information about these 44% unsold homes less than 35 lakhs, please let me know"


Ditto!

My guess, these are probably projects on the remote outskirts (or in builder speak suburbs) of major cities where you would live in complete isolation.

Some of the projects I've been to in the Pune area where these price ranges exist definitely didn't seem healthy for a "family", especially after dark, if you know what I mean.

polt said...

@Anon - " There are lakhs of people waiting on sideline to purchase RE if it falls even 40% from current price."

This is sort of the point that many of us RE bears are trying to make. Yes, there is latent demand, but not at current prices.

Pawan said...

Look at this excellent chart:
http://capitalmind.in/wp-content/uploads/2012/01/image36.png

Banks interest rates paid on 1-year FD were lowest in 2002. Exact same time when the RE boom started.

The rates were highest in 1995 when RE was down in dust.

In 2008, govt. cut rates to trigger the (speculative) boom again.

I hope this very clear correlation of property prices and interest rates (easy money) puts to rest all the BS theories - rising population, growing incomes etc - that RE bulls use to justify current prices.

Anonymous said...

http://timesofindia.indiatimes.com/world/rest-of-world/Rio-high-rise-buildings-collapse-in-centre-of-city/articleshow/11638561.cms

Anonymous said...

High rise buildings need more maintenance in long run. Are all residents aware and ready for these expenses. Buying is one thing and maintaining is another.

I'm sure there will be many !@## residents in building that will not pay their dues for whatever reason - what is legal recourse for them. So far I have seen none and either all residents have to cough up/share or let building maintenance rot (most likely). So far we haven't seen this because builders charge upfront 2 to 5 years maintenance fees. What after 5 years?

Anonymous said...

This is a good time buy at depressed prices if one has the cash and one can bargain down the price.

But are high-rise apartments in India safe to live in? How long will these apartments last? Everything is substandard in this country and people are busy cheating each other. I just do understand this craze for buying apartments.

Anonymous said...

This is a good time buy at depressed prices if one has the cash and one can bargain down the price.

I will wait for interest rates to raise. Late 2014... because US will raise the rates, that should impact India big time.

Anonymous said...

I agree that the prices will crash more. But it's hard to time the market. Also, don't wait for the US interest rates to go up. They can be kept low for years. This is the new normal.

But will anyone address my question about the quality of apartments? Will these apartments last for a hundred years like the ones in New York? Or are they completely substandard? From everything I have seen in this country, I feel that there are a lot of crooks in every business in India and I can't imagine the construction business being any different.

Are people buying boxes of sand that will collapse on them one day? This is what I am asking.

Pawan said...

But will anyone address my question about the quality of apartments?
I was talking to a dealer in Delhi once and he confessed that the construction quality in some of the apartments is really poor and they might have to be torn down and rebuilt in 20-25 years. But for a buyer, there is hardly a way to find out which ones are good and which ones are bad. But who cares as long as prices are going up?

Anonymous said...

I agree that the prices will crash more. But it's hard to time the market. Also, don't wait for the US interest rates to go up. They can be kept low for years. This is the new normal.

No, this is not new normal.

More longer the interest rates are kept more painful will be when rates go up. This is just way of kicking can down the road.

Think low interest rates, easy credits will fuel market, asset prices. But reverse will happen when interest rates go up. Read up on 'Deflation crunch'.

New normal is when prices of rest of all necessities also rise up.

As far as quality of Indian building. check out lower parel or south mumbai building that were built (non-british builders). psstt.. pls do not walk inside those buildings as they might collapse anytime.

Anonymous said...

Thanks for the responses. I have kept away from apartments and probably will never buy one. But I am worried about living in one if and when I move to one of the metros. Most big cities in India are in major earthquake zones. The probability of an earthquake is very little but then it only takes one big one. I know I might be sounding crazy. I am not trying to scare anyone here.

As for interest rates, the US can keep printing as long as it wants. They have the privilege of having the reserve currency. Also, the rest of world is in deeper shit (except China of course). So, capital is flowing into risk-averse US treasuries providing the US with very cheap financing. Most people assumed that by now the US treasury rates would rise but they have remained remarkably low because of this risk-off tendency.

From 2006, I have believed that a deflationary spiral will happen but Bernake is trying to make up for the asset destruction by creating new money. So it's a wash. We are in a mild global economic depression but yes, expect the rates to remain low until the Euro crisis, Indian corruption, Japanese malaise etc are solved. Not going to happen any time soon.

Anonymous said...

Beware of Booking your Flats with Sahara.

Please read the below story

http://business.outlookindia.com/article.aspx?266568

Indian said...

Guys,

Last week we have seen the most dumbest thing ever you imagined by RBI.

RBI has signalled monetary easily based on onion and potato prices. would you believe it?

here is the country with huge population facing a huge oil crisis and inflation pressures due to all other items and articles is cutting interest rates ONLY BASED ON THE PRICES OF ONIONS AND POTATOES. Do you think this country can be saved?

Indian said...

Indian foolish government and authorities childishly believe that the economy can be saved only by saving the f***ing share market?

What a irony?

We reality bears need to wait for some more time...let us see

Anonymous said...

Low interests = rising asset prices.

Elites will borrow the free money and put it to work chasing all kinds of assets from stocks, PM, RE, commodities.

This is the game that is being played since 2009 and it's going to continue.

Expect huge FDI inflows in 2012 to surpass the record set in 2011.

Good luck to all.

polt said...

Bubbles all over -
http://www.doctorhousingbubble.com/global-housing-bubbles-collapse-canada-bubble-uk-italy-australia-peak-real-estate-debt-mania/

One of the arguments used to justify the AU/Canada bubbles is that rich Chinese will continue to push up the prices. This sounds similar to the NRI argument used here. In the 1980s, California and Hawaii had a RE bubble due to rich Japanese investors.


Ultimately, the RE market has to be supported and sustained by local demand. Secondly, even overseas investors will eventually start to see that the underlying earnings(rents) do not justify the prices.

Anonymous said...

do i have to pay emis for 20 yrs even after the apartment collapses in 10 yrs? lol...

Anonymous said...

"here is the country with huge population facing a huge oil crisis and inflation pressures due to all other items and articles is cutting interest rates ONLY BASED ON THE PRICES OF ONIONS AND POTATOES. Do you think this country can be saved?"

Elections are coming soon and the people must be bribed. This will be done in the traditional, time-tested way by easy money printed from nothing. Savers will be raped by a combination of inflation and low interest rates to reward the crooks and cronies that are close to the government criminals.

Pawan said...

Savers will be raped by a combination of inflation and low interest rates.

Very true.

samix said...

gold, the "barbaric relic" has recently found an application, India will be paying Iran for oil with Gold, so much for all the gold bears on this blog.

http://www.youtube.com/watch?feature=player_detailpage&v=N1GtcrVOYDw

Anonymous said...

Savers will be raped by a combination of inflation and low interest rates.
So true. http://timesofindia.indiatimes.com/business/india-business/Jaipal-Reddy-wants-Rs-80000-additional-tax-on-diesel-cars/articleshow/11655549.cms

http://timesofindia.indiatimes.com/business/india-business/Airfares-to-soar-as-AAI-wants-charges-hiked/articleshow/11655359.cms

Kick these shaitaans out. Substandard homes, water, no electricity, keep people poor. garbage, filth. and them leading a five star "free" life.

Pawan said...

Savers will be raped by a combination of inflation and low interest rates.

On second thought, that is true in USA only. Our RBI Will probably raise rates if inflation does not come down. And the chance of inflation coming down gets substantially reduced if FED continues with low interest rates. Already people are talking of Oil at 120 USD so any benefits gained from rupee appreciation will be nullified.

Besides there is a news in today's paper that railway will raise various fares this time after not having done it for the last 9 years.

There is further talk of taxing diesel vehicles 80,000 more.

All this tells me that the govt. is in a very tight spot. Fiscal deficit is expected to be 6-7% and govt. disinvestment program is not going great either. So what's the way out?

I believe RBI will have to raise bond rates to attract capital. The only thing to see is if RBI can go against the populist govt.

polt said...

@Samix - "India will be paying Iran for oil with Gold, so much for all the gold bears on this blog."

Actually, this implies that the govt/RBI thinks gold is overvalued. Think about it, would you trade an asset if you thought its value was about to go up?

In other news - Expect interesting times in Bombay RE market this year or next if the following trend continues - http://economictimes.indiatimes.com/markets/real-estate/news-/mumbai-homes-sales-down-30-in-oct-dec-at-3-year-low/articleshow/11652210.cms

Note that Bangalore, Hyd are already losing value in real terms.


The property fever continues in the media - http://economictimes.indiatimes.com/markets/real-estate/realty-trends/not-only-one-real-estate-investors-look-to-own-second-home/articleshow/11644191.cms .
Virtually every city is shown as a good investment avenue in this article.

I read recently that Chandigarh prices have fallen by about 30% last year.

samix said...

Actually, this implies that the govt/RBI thinks gold is overvalued. Think about it, would you trade an asset if you thought its value was about to go up?

Pawan, does this mean that from 1974 when the US dollar was the strongest, India was buying oil with dollars because they expected the dollar to go toast ?

And, your argument would mean that Iran is stupid in exchanging their oil for gold.

Uptil now the argument of the gold bears has been that gold has been phased out of international trade, but that is now getting undone, even China is mulling starting trading in gold with Iran, Saudi and Malaysia already settle their trade in gold, If I am not mistaken.

polt said...

>India was buying oil with dollars because they expected the dollar to go toast ?
We would gladly trade in rupees if folks accepted it.

>And, your argument would mean that Iran is stupid in exchanging their oil for gold.

No. Not stupid. Its just that for them gold is more valuable than it is for us (for whatever reasons, maybe it is some way to beat Western economic sanctions).
In any free trade, you will sell only if you see an advantage in selling and likewise for the buyer. As Milton Friedman put it 'The most important single central fact about a free market is that no exchange takes place unless both parties benefit'

Or maybe it is because the RBI wants to hold on to its dollars which might be needed to shore up the rupee.
I think it is too early to make a bearish case for the dollar and a bullish one for gold.

DhImAn said...

@Samix - "India will be paying Iran for oil with Gold, so much for all the gold bears on this blog."

Actually, this implies that the govt/RBI thinks gold is overvalued. Think about it, would you trade an asset if you thought its value was about to go up?


Umm, what will the gold price of oil be in that trade?

Surely you don't expect an ounce of gold to simply be converted to a dollar value and then exchanged for oil, do you?

Aha, without that extremely vital piece of information, there cannot be any meaningful discussion on this subject.

Anonymous said...

The builders have gone crazy
http://www.mid-day.com/news/2012/jan/280112-Mangrove-destroyer-caught-on-camera.htm

Anonymous said...

To earlier concerns about quality of these high rises here's the reality:

Pune builder cannot even build a compound wall properly!

http://timesofindia.indiatimes.com/city/pune/Boy-killed-in-wall-crash-at-hsg-complex-garden/articleshow/11659039.cms

Wonder how many lakhs did the poor parents pay to facilitate this horrible death for their son!

So, yeah, put your money, faith, health and safety of your family in the builders hands and take the plunge!

Anonymous said...

For big promises, I would like to see photos of colorful swimming pools (if any with water) in community after 6-7 years.

It is not that all building qualities are bad, reputed builders like Hiranandani, Rajeha would have better quality than cheap builders.

Hiranandani communities in Mumbai still look beautiful after 10+ years.

Anonymous said...

Sadly, the safety cannot be gauged by how pretty the structure looks and can only be known when the structure is put under the stress it was designed for.

There are historical buildings and bridges from British era that don't look much but are structurally sound and have lived through 100's of years.

I wouldn't place any trust in a builder who cannot even control the quality of a basic garden wall.

Now they seem to be conveniently blaming the sub-contractor. One has to wonder how much has this sub-contractor already contributed to their project beyond the boundary walls.

Can't begin to imagine what parents and brother are going through...

polt said...

@Dhiman - "Surely you don't expect an ounce of gold to simply be converted to a dollar value and then exchanged for oil, do you"

My guess would be that Iran (for whatever) reasons would be willing to pay a premium (in oil terms) for gold. Otherwise no reason for India to trade using metal.

Irrespective of correctness of the above guess, the point is still valid that both sides have to see an advantage in the trade.

Pawan said...

Some sense from mainline press:
http://www.firstpost.com/blogs/why-property-is-not-always-a-healthy-investment-for-you-195518.html

GSM said...

Irrespective of correctness of the above guess, the point is still valid that both sides have to see an advantage in the trade.

Can I ask something? RBI bought 200 to gold at ~$1000 2 years back. Unless they are not speculative traders, would they take a U turn on their view of Gold? The sovereign debt crisis is more severe than it was then and most likely going to get worse in the future. Can the RBI not convert the dollars to gold at today's price anytime that they would have otherwise paid to Iran for oil?

Pawan said...

Worth a read:

http://www.moneycontrol.com/news/features/punjab-bread-basketindia-hungers-for-change_658751.html

Ankan said...

That was really an amazing information..

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Anonymous said...

Massive property price appreciation by 2014

http://www.dnaindia.com/bangalore/interview_massive-property-price-appreciation-by-2014_1644547

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