Sunday, May 06, 2012

Power of Attorney deals cause market slowdown

NEW DELHI: The ban imposed by the Delhi government on general power of attorney as a mode of property transfer, following a Supreme Court order, is expected to impact the entire property market. Property dealers say that while the ban was required to regularize property transactions, in the absence of a simple and clear procedure for converting leasehold property or property held under GPA into freehold, transactions may fall sharply, at least for a while. 

"The move is right - that's how it should be. Property should not be transferred through power of attorney. However, along with this, the government should improve the process, the system of transfer so that people don't suffer. A majority of owners go for GPA because they don't have a choice. I think residential property will be hit the most," says Anshuman Magazine, chairman and MD, CBRE South Asia Pvt. Ltd. 

More from the Economic Times

280 comments:

1 – 200 of 280   Newer›   Newest»
REBear said...

Hard to believe government is going to do anything which causes bubble to implode. Will this really cause property prices to crash ? Your valuable comments please with arguments for and against.

Pawan said...

Govt. did not do it. It was a supreme court order. That's the for argument.

Anonymous said...

At last I was able to upload my comment. Thanks
Kulbir

aam aadmi said...

Good job
The power of attorney is a scam that has been misused over and over and yet nothing has been done about it.

Next step...computerization of all land records...and when that comes under RTI there would be significant progress.

Anonymous said...

Guys,

I guess this has been done only in Delhi now. Supreme court should tell that it should be done all over India.

Understandably the RE mafia and brokers are not happy with this. you know why?

One interesting factor I observed is that even in general public many people have invested at the peak of the value at Indian RE. They also dont want RE prices to crash. They are happy to live in high inflation regime. That is Indians for you.

Anonymous said...

Guys,

I guess this has been done only in Delhi now. Supreme court should tell that it should be done all over India.

Understandably the RE mafia and brokers are not happy with this. you know why?

One interesting factor I observed is that even in general public many people have invested at the peak of the value at Indian RE. They also dont want RE prices to crash. They are happy to live in high inflation regime. That is Indians for you.

Anonymous said...

One very nice thing about this GPA rule in Delhi is that new flat bookings will nosedive as many people buy on GPA and sell them on GPA many times even before the flats are built. Now one person who books that flat has to wait till the completion and then register it before they can be resold. And construction mafia cannot delay the projects anymore waiting for prices to go up.

The rule will also prevent a lot of black money dealings on GPA.

Real estate agents should find a real job. These parasites on earth make crores of rupees by scamming people and there are many educated people who worked very hard all their lives and work hard at their work and still get paid peanuts.

I think all for sale listings should be advertised online and buyers and sellers can meet directly without the need of these uneducated frauds and goons.

kulbir said...

I agree with you that GOI is big money printer but you need to focus on where does the newly printed money goes to. I believe that and past experience shows that new money printing effects food commodity prices first. So if you argue that GOI is going to print so much money that rents will rise up to match EMI I can bet you that we will see revolt and riots in this country because food prices will go beyond the purchasing power of 60% of population.
Some inflation helps politicians and central bankers but runaway inflation is not what they want as the whole system collapses which does not do any good to anyone.

Pawan said...

Some inflation helps politicians and central bankers but runaway inflation is not what they want

Your statement seems to imply that they can control things.

Kulbir said...

Yes they can surely control money supply which can cause inflation.

Pawan said...

Yes they can surely control money supply which can cause inflation.

In theory yes, in reality no.

If govt. stops printing money then cost of money will go up. If interest rates go up to say 12%, people will defer consumption and instead put money in fixed income. This would cause a major slowdown which will render a huge chunk of population jobless.

So the choice basically is to keep people employed with consistently high food prices or risk a major crisis.

For example, why should govt. not shut down Air India with an accumulated loss of 40,000 crores and counting?

Pawan said...

According to my understanding the explanation for Indian real estate price appreciation is not credit expansion but psychology and mindset of people that real estate prices can not fall no matter what happens.

The reason is that there are no investment/savings instrument which would provide real returns.

When the govt. had KVP and IVP which would double your money in 5-5 1/2 years, there was no property bubble.

Start paying a market determined interest rate to people on FDs and see the bubble burst.

k said...

At least you agree on something even if partially. My argument is not that GOI will not print money but it will not print so much money so as to risk bubble in food prices which leads to people dying of starvation.

Kulbir said...

There it is Pawan you hit nail on head, negative interest rate is what is leading to mal-investments in real estate. This is what is leading to serious problems worldwide but that does not mean that bubble in Indian real estate is going to continue forever it busted in US it is going to burst in India too.

Pawan said...

My argument is not that GOI will not print money but it will not print so much money so as to risk bubble in food prices

And I said that govt. can control money printing but not where the printed money goes.

Pawan said...

it busted in US it is going to burst in India too

Why worry about that? If BMW wants to sell in India, they have to worry if people can buy such expensive cars in India. Are you worried that BMW is available but you are not able to buy?

Same thing applies to unaffordable RE.

Kulbir said...

If you want to live with delusion that real estate prices cannot correct then nobody can stop you to think so, but your delusion does not change the economic laws which apply to every country on this planet. Anything which is overpriced is bound to correct and real estate is no exception.

Anonymous said...

@Pawan - "Start paying a market determined interest rate to people on FDs and see the bubble burst."

FD and savings account rates are market determined. The RBI only sets a base rate. Banks are free to set the rate that they wish.

What is questionable is how RBI sets the base rate. Some economists say that housing is a basic need and therefore home prices too should be considered while computing the inflation index. This should then be used by the RBI to determine base rates.
Existing home owners and builders will oppose this. Buyers will support this :)

Pawan said...

FD and savings account rates are market determined.

AFAIK, very recently saving bank account rates were deregulated. Post that some banks like Kotak and Yes bank have started paying 6-7% on savings account while others still pay 4%.

FD rates probably are deregulated but not market determined. If rates were truly market determined, then you can have negative rates only if there was absolutely no demand for capital and supply would be high. In such a case, banks would charge you for keeping your money safe.

Anonymous said...

@Pawan - "FD rates probably are deregulated but not market determined."
Who determines the rates then? Are you suggesting some sort of under-the-table control by the govt?

FD rates are currently around 9%. I would guess that is around where inflation is running. So rates are not negative currently.

Pawan said...

Are you suggesting some sort of under-the-table control by the govt?

Yes.

rates are not negative currently.

If I earn 100 Rs and pay 30 in taxes, I take home 70Rs. If I save 20 Rs out of that and put them in FD where I get 9%, govt again takes 30% of that. So I get only 6.3% interest rate effectively.

Thus while interest rates should be 2% above inflation, they are actually 2% below that. And then who trusts the govt. inflation number?

Pawan said...

Are you suggesting some sort of under-the-table control by the govt?

Its RBI actually. Supposedly independent of govt. But then you know who controls RBI.

Kulbir said...

With regards to investment avenues,I can share one with you. Taj GVK Hotels is a publicly traded company with market cap of around Rs 400 crore. This company owns and operates five 5 star hotels and two properties which are currently under development, one of them is a 150 room five star hotel in Chandigarh.
the market cap of Chandigarh property is around 350 crore but if you buy Taj Gvk shares you get Chandigarh property for around 70 crore. Keep your mind open as at present share market is providing lot of such opportunities but if you focus just on real estate you are going to miss the real deals.

Pawan said...

Hi Kulbir,

The stock idea does seem interesting. How do you figure the market cap of Chandigarh hotel is 350 Cr? And why do you say it is available for 70 Cr?

A back of the envelope calculation says that for a 150 room hotel to have a valuation of 350 Cr., the profit generated per year should be at least 35 Cr. Assuming a fixed cost for operations as 5 Cr, each room should give a revenue of 20L per year (this is all profit).

Now assuming an occupancy rate of 200 days per year, the room should rent for 10,000 per night for 20L of revenue in a year.

I have no idea of how the hotel industry operates and whether we do get occupancy rates of 200 days per year. But the idea does seem compelling.

Can you provide some basis for the 350Cr valuation? Thanks in advance.

(PS- Sorry for hijacking the board. I hope the discussion is beneficial for the readers.)

Anonymous said...

@Pawan,
Nowhere in the world will you get a safe instrument that beats inflation. If it existed, demand would push up its price to the point where yield would match inflation. FDs are safe, but tax inefficient for high earners.

If you are in the high tax bracket, then consider a mix of long and short term debt funds and you can reasonably beat inflation with low (but not zero) risk.

Kulbir said...

http://www.propertywala.com/P297380013
This is hotel in same locality and its asking price is Rs 450 crore. Regarding valuation of Rs 70 crore to Chandigarh Taj property is approx. as the whole company's valuation is around Rs 370 crore which controls 7 properties in total. Check moneycontrol an company website for further information. Thanks

Kulbir said...

Pawan with your valuation method you want to earn 10% return after the maintenance and associated cost, can you please tell me where such real estate investments are available I will be more than happy to invest in such properties. If not you should at least concede the fact that real estate in India is overvalued.

Pawan said...

@Kulbir,

When did I say property is not overvalued? I have been merely saying that if property is overvalued there are reasons. With 15-20% money supply growth, assets should have come 4-5 times pricier in 10 years. In case of prime properties, like that in Gurgaon, the hike has been 8-10 times. The reason for that is the people who aspire to buy these properties have seen their earnings grow much faster than growth in money supply.

Just like when Sensex went up 5 times, there were Sensex stocks which went up 20 times.

And the other reason is there are no good alternate investments available.

Pawan said...

@Kulbir

As for hotel valuation, I would think 200 day occupancy in a year is pretty good. And 10,000 Rs per day is actually on the higher side.

If the business does not give 10% return then why do it? Better invest in FMP where return would be around 10% with some risk and rest at home.

Anonymous said...

@Pawan - "The reason for that is the people who aspire to buy these properties have seen their earnings grow much faster than growth in money supply."

Home prices will rise in tandem with salaries only if supply is constrained. A house is a manufactured good and will be priced like one in the long term.
A recent report showed that almost 20% of homes in Gurgaon are empty and more inventory will be ready for occupancy this year. Hardly the sign of a constrained supply.

Moreover, rents have not gone up at the same rate that salaries have.
This sort of indicates that prices are unhinged from the levels that fundamentals say they should be.

Polt

aam aadmi said...

@Pawan
Increase in money supply does not automatically guarantee increase in RE prices.

Velocity of money is not the same in all sectors, every sector has it's own demand, some sectors are tied to the fate of the economy hence it does not matter how much money supply is there, if the economy isn't booming there won't be a corresponding rise in prices.

In an inflationary scenario it's better to buy gold than RE. Consider the 1991 overnight depreciation of the rupee, would one be better off holding RE or gold in that scenario. At least one can buy one gram of gold, haven't heard of anyone buying one bathroom or one bedroom.

Kulbir said...

other reason is there are no good alternate investments available

You cannot say that real estate is the only investment available, real investor will not invest in something just because no other investment is available when it not making good return. Masses will always have herd mentality that is why so few ever strike it rich,you cannot protect them as they will invest when sensex was at 20000 and now are leveraging themselves to buy real estate. If you want to make good investments decisions do not follow the herd make your own road.

Kulbir said...

If the business does not give 10% return then why do it? Better invest in FMP where return would be around 10% with some risk and rest at home.

Pawan
You do not want to invest in business which does not produce 10%+ returns but then why will you invest in real estate which yields less than 3%. There is no economic incentive in buying real estate as it cannot generate positive rate of return after inflation. You will argue price appreciation is also part of return but investing is future oriented and why should a property appreciate when you cannot have positive cash flow at the current prices. That does not mean that market is perfect and will correct if I want it to do so.
Unitech in 2007 was at Rs 500 it could have gone to 1000 but ultimately in long run prices reflect fundamental value which in Unitech's case is not even Rs 30. Prices of real estate will correct one day so as to reflect fundamental value, it will happen and I do not doubt even a fraction that this won't happen.

Pawan said...

@Kulbir,
When did I say I want to invest in RE or I am invested in RE?

But I see friends who want to buy because they see RE prices going up each year and they are being left behind. They are not investors. They want to buy for self use. If a property was worth 60L 3 years back and today it is 1 Cr, and they believe it will be 1.2 Cr, how do you think they will be able to afford it? There is no way they can earn/save more than 20L in the next year.

I tell them it is wrong to buy now. They tell me you have been waiting for prices to crash for the last 3 years. What do I tell them? I have learnt that giving free advice is the stupidest thing one can do in life.

KSM said...

http://www.firstpost.com/economy/the-pain-in-spain-will-get-us-too-so-forget-market-rallies-302278.html?utm_source=MC_TOP_WIDGE

very interesting to read

aam aadmi said...

http://www.thehindubusinessline.com/industry-and-economy/info-tech/article3397281.ece?homepage=true&ref=wl_home

Cognizant to give 8% hike this year

Anonymous said...

Watch this interview of Keki Mistry of HDFC. http://www.moneycontrol.com/video/results-boardroom/will-pass-on-rate-cuts-only-when-cost-of-funds-drops_701579.html

Kulbir said...

Pawan you also seem to be frustrated with the relentless price rise of real estate like many others including me, however this does not mean that we should let go our critical faculties are accept what is given to us. The world is not perfect and will never be so, it is we who should think rationally.

Housing should not be a luxury but a basic requirement like clothing and food. Houses surely are very expensive and getting dearer day by day although rents are stable. People need to control the urge to buy property when they cannot afford it instead they should be renting.

There is social stigma which is attached to renting which is compelling people to buy even if they have to take huge loans. As I said earlier you cannot protect the masses as they will always follow the herd even if they are moving towards cliff edge and do not give advice to such people as your good intentions will never be appreciated.

Anonymous said...

// There is social stigma which is attached to renting which is compelling people to buy even if they have to take huge loans. //

More than stigma there is another reason. People in India do not move from their location for decades (many time for generations). Because infrastructure is limited to limited places, migration is very difficult. People buy RE for really very long term, why pay rent if you are going to spend your life in that city ?

Now question of affordability in lacs and crores still baffles me after many years... how can RE all over India be so expensive... how can so many people afford it or keep holding RE at such absurd price? There is definitely something going on in finance / job market...

Anonymous said...

Cognizant to give 8% hike this year

Interesting. 8% average hike certainly seems lavish considering the uncertain future in Europe and US which would be major markets I presume.

Indeed we could witness a dual economy where RE prices in the IT hubs continue to be strong but non-IT markets can experience a correction. RE prices are also affected by the micro economic climate.

Anonymous said...

Cognizant will withdraw from its 8%hike plan like Infosys did. This company is not doing very well and has hired a lot of MBAs from foreign schools at very high salaries. They may not get the contracts they are hoping for and would layoff these $110-120K MBAs they recently hired.

Anonymous said...

Anon at 1PM:

RE is holding value due to these reasons:

--Very easy debt.
--Salaries have gone up.
--People buy thinking RE always goes up and there are many buyers to make profit.
--Many people have sold RE to buy more property (diversified).
--A lot of money printing from GOI/RBI.
--A lot of foreign buyers.

So far people say it is supply and demand. I think it is artificial speculative demand and very soon it would be a lot of supply and zero demand. All the investors would become sellers and put a downwad pressure on housing prices. It may correct by 70%, in fact overcorrect.

Anonymous said...

Anon above:

You are spot on. India in fact has speculative demand and the bubble is deflating fast. All the optimism is fading now. I see people getting worried not to keep up with their jobs. Black clouds are all over the Indian economy. I see an impact as below:::
=Major layoffs
=Salaries being reduced
=RE tanking by 25% this year alone
=UPA in major problem to survive
=BJP comes in power in 2014 and is equally corrupt
=Masses really get unhappy
S&P has rated India below Greece and Spain even now. Who knows when would the masses get to the road and start demonstrations.

Anonymous said...

Commercial RE also has gathering clouds. High vacancies and falling rents.

http://economictimes.indiatimes.com/markets/real-estate/news-/mumbais-lower-parel-one-of-the-most-coveted-piece-of-real-estate-in-the-countrys-financial-capital-hard-to-sell/articleshow/13066443.cms

Pawan said...

Anon 5:25,

Even if everything you say comes true, remember one thing - money supply is still growing and in rupee terms RE prices will not fall any time soon (20-25% fall is no big deal).

Salaries/wages will have to stagnate in nominal terms (Infy announced Zero hikes this year) so that in real terms everyone gets a pay cut (zero hike with 10% inflation means an approx 10% pay cut). This has to go for next 3-5 years for purchasing power of citizens to be destroyed and then and only then will the discretionary spending like that on automobiles, houses, and iphones will evaporate and asset prices will go down in real terms. 10% inflation for 5 years would make money 50% cheaper so a 1 Cr. house will seem like a 50L house in real money terms provided you still have a job and save enough after spending on expensive food, fuel, power, clothing, education and health care. I hope you get the idea.

Anonymous said...

Pawan:
Money supply cannot go on the way it has since 2008. India cannot keep on borrowing and printing money. If this continues, even Moodys will downgrade India to negative. Also, the USd/Rupee would easily be in the range of 70-75/USD.

I think what you are saying would happen but that would not be the end of story. It would get so ugly that it would be difficult to borrow money, sellers would not be able to sell RE and it would bring the prices down drastically.

Why do you think that people would not buy iphones etc but would buy RE. iphones may not go down in pricing, but RE would and may correct upto 70% from the peak price.

For people thinking it was too easy for them, easy come easy go.

Anonymous said...

>>S&P has rated India below Greece and Spain even now>>

Big deal eh? Remind me aren't these the same rating agencies who gave AAA rating on subprime mortgages? How many banks in India required a bailout vs Europe/ US? Remember if major layoffs do happen as you hope, you would be jobless too. People like you can only feel good looking at more sorrows of others. What a Moron!!

aam aadmi said...

money supply is still growing and in rupee terms RE prices will not fall any time soon

Correct, which is why it's a good idea to invest a part of your money in PM's and other imported goods. This brings us back to the high inflation debate.

Though I don't expect rupee to go to 70. A lot of things will begin to break down at 60, oil imports for example will become impossible. There will be psychological distress as well. RBI will be forced to raise interest rates extremely high.

aam aadmi said...

20-25% fall is no big deal

I don't know how you can make that statement. A 10% fall on an apartment worth 65L is 6.5L, money which has to be borne by the salaried house owner. A 20% fall is 13L.

Don't you see a problem with all these homeowners suddenly being asked to fork out 13L or lose their homes?

Anonymous said...

Anon @9:25:

Banks in India didn't require a bailout earlier but would require it soon. Most countries where banks were bailed out was due to their RE bubbles bursting. India hasn't seen the pain yet. One can ignore what S&P does etc., but reality is that there is no reality in Realty sector.

As this RE elephant goes down, it will take down many banks and many many jobs.

Don't believe it, buy some more flats and be happy. Watch the game as it unfolds. Then your own family would call you a MORON soon.

Anonymous said...

Anon above

Keep on dreaming with your predictions. Can you put a exact timeline for your "soon"?. Why don't you work as consultant for RBI after all they are are a bunch of idiots. My point was not about RE being bubble or not, even if RE bursts India won't go the path of Europe staring at a bottomless pit. Simply because we have 35% savings and a working demography and excluding oil and gold, import export is well balanced. And by the way you don't have to take out your agony with comments to buy, lets see et all. We have been seeing the same all these years ;-)

Anonymous said...

// excluding oil and gold, import export is well balanced //

What do we export?
1.Software
2.Cars
Both can go out of our hands if the pay masters find better location.

Is this what you call well balanced ?
http://commerce.nic.in/eidb/iecnttopn.asp

// 35% savings //
Saved in what? Fiat currency? Check with Russians what happened to their savings during 90s crisis?

Anonymous said...

Indian banks cannot be bailed out easily. Unlike US (reserve currency) and China (surplus), India is already running high deficits. Any bailout means, government will have to borrow more to cover the cost of the bail out.

A bank bailout will come at a very high cost to the middle class. Essentially it will be a double whammy of lower asset prices coupled with higher taxes which will be required to cover the cost of bailout.

This will pretty much decimate what's left of the middle class. The only sane way out is to make the "investors" eat the losses as much as possible.

Don't know what the foreclosure rules are in India. Can one foreclose on their investment property while protecting their other assets or can the bank come after you for everything you're worth?

Anonymous said...

Anon @10:34

How do you know India will not go go the bottom pit unlike EU. Do you know how much India has borrowed? How much is India's credibility now worldwide?

EU will come out of it in 4-5 years but for India it will take 20years.

What world are you living when you say 35% saving?

I would say throw your bias towards India and see it at a macro level. You'll find that India is more screwed than any other country. Kicking the can down the road doesn't prevent the inevitable.

Anonymous said...

As regards to RBI, it has become a prostitute of the ruling Govt. Same with all other central banks. They do what is best for the ruling party not for the country or masses.

RBI had no business lowering rates when inflation is so high. They are busy pleasing their masters.

Anonymous said...

Here is how I see it:

1. Housing prices will not correct much in nominal terms. In real terms, they will collapse (already have gone down 25-30% when measured in JPY, SGD or even EUR).

2. Housing pricess will correct in nominal terms only if GLD corrects in INR terms. High real GLD prices constitute an unearned transfer of wealth from the developed West and the rest of India to India and as long as this "wealth effect" continues, Indians are not going to be shying away from RE anytime soon. One of the principal reasons why Indian RE didn't correct in 2008 (when the rest of the World did) is because any losses in household's wealth due to RE was more than offset by an increase in the value of their GLD holdings.

3. Indian RE will correct overnight in nominal terms if INR is made fully convertible. The money will flow outside seeking diversification and alternative areas of growth.

Just a few thoughts. Will post more later.

Anonymous said...

"rest of India" = "rest of World" in post above.

Anonymous said...

Anon above:

Your justification if false and foolish. Gold itself is in a bubble ready to drop 50% in the next year or so.

RE will correct in rupee terms by more than 60%.

Don't believe it, buy more flats and believe in yourself.

Anonymous said...

Also, RE in India did fall by 40% in 2008. GOI printed massive money and then massive stimulus which prevented a freefall.

Don't be too optimistic son.

aam aadmi said...

Simply because we have 35% savings and a working demography and excluding oil and gold, import export is well balanced

Not correct, we import a lot of other things, important among them are NG, fertilizers, vegetable oil, capital goods, scientific equipments, chemicals, some amount of steel etc. And you dish out the term oil as if it's something one can do without, if our imports stop or decline by even 20-30% the economy will come to a grinding halt.

Anonymous said...

Mango Man:

You are right. Many Indians are living in a fallacy. The bubble should burst and many young folks should see the reality.

I hoe to see a fairness in the system.

Anonymous said...

>>Both can go out of our hands if the pay masters find better location.>>

Go and check out how many companies have started their R&D divisions in India recently. Obviously, the decision making executives are a bunch of idiots. And please do not give me examples call centers moving to Phillipines, as we grow, we will move up the value chain.

>>Saved in what? Fiat currency? Check with Russians what happened to their savings during 90s crisis?>>

So what asset do you save in? For you RE is a bubble, gold is a bubble, Fiat currency will collapse, World will come to and end.... Please advise me for a better alternative.

>>Any bailout means, government will have to borrow more to cover the cost of the bail out.>>

As an example, GOI owns $500+ Billion worth of Industries. LIC manages 3 Lakh crores. Just forcing LIC to invest a few billion in Banks will cover the cost of bailout.

>>How do you know India will not go go the bottom pit unlike EU. EU will come out of it in 4-5 years but for India it will take 20years.>>

Give me 2 proper reasons how EU will come out of the mess and I will agree. Except Germany, what do the EU produce? Financial Engineeing? Weapons? Their economies is dependent on Consumer spending and when the consumers are maxed out their borrowing, how will they come out?. This ain't 18th century where they have colonies to fund their lifestyle (May be they are trying out that with wars in ME and Africa). Add to that the working population is ageing. Now coming to India will the reverse not hold true?

>>RE in India did fall by 40% in 2008. GOI printed massive money and then massive stimulus which prevented a freefall.>>

Thats my point. US/UK/EU did print much more money but why did the RE/economy not recover there?

Anonymous said...

RE prices in India will never go down. This was being said for the past 4 years and there were no price drops. Nowadays young couples with double earnings make 2 lakhs per month easily. Even if they spend 1 lakh on house and another one for investment they still have 1 lakh per month. The other investment house price goes up and also gives rent to cover EMI

DhImAn said...

Gold itself is in a bubble ready to drop 50% in the next year or so.

An ounce of gold is an ounce of gold. It neither increases in mass nor decreases as time goes by.

It's value (not in rupees or dollars), but in its desirability, is a function of humans wanting it more than anything else - in economic terms, gold is that commodity whose marginal utility declines the slowest.

Humans are satiated by everything to varying degrees - a thirsty person has tremendous marginal utility for a glass of water, but this marginal utility declines after he has had his fill. The same is true for food, clothing, houses and so on.

Gold is simply that thing whose marginal utility declines the slowest. You may not want your ten millionth ounce as much as your first, but would you refuse it if it were offered to you free?

In that bigger picture scheme of things, the ratio of an ounce of gold to a purely fictitious, imaginary thing as a rupee or dollar is itself fiction.

Who cares if it goes up or down?

RE will correct in rupee terms by more than 60%.

For that to happen, governments and banks have to pursue policies that are opposite to what they are doing currently.

This is simply because the rupee is a function of the central bank's money printing and the ruling party's policies. Unless those things take a U turn, housing in rupee terms won't correct like that.

I've long been saying, and rightly so, that Indian RE has been and will continue to fall in real terms, real being defined as with respect to other material things like gold, oil and so on.

To give you an example, in some place in Pune, flats were priced at Rs 2000 per square foot in 2003, at the same time gold was Rs 4500 per 10g. Today, those flats are priced at a maximum of Rs 8000 per sq.ft. and gold is at Rs 28,500 per 10g.

So, let's say you had found your dream house in 2003 - it was 2000 sq.ft. and would have cost you Rs 40 lakhs. Today the same house fetches at the most Rs 1.6 crore.

Priced in gold, you would have to spend 8.89 kilograms of gold for that flat in 2003 - yes, 8.89 kg!

Today - 5.61 kg.

This means that today you could buy that same flat and have 3.27 kg of gold left over to gift your daughter or daughter-in-law on their wedding. Or, if you are the more colorful type, a gift for your mistress.

Do the same calculation for oil, copper or other real commodities and you will see a different side of the real estate story.

The simple truth is that RE has lost value slower than many other rupee based financial instruments, but that doesn't make it that great an investment. Measured in real terms, even after such a red hot market, it has not even outperformed that barbarous relic.

Pawan said...

Anon 11:21,
So what is your problem with young couples making 2L per month? They work hard for the money and pay taxes on it. They have got those jobs because of their intellect and hard work not because they are related to some politicians or have a fortune left by their parents.

Pawan said...

@Dhiman

This means that today you could buy that same flat and have 3.27 kg of gold left over to gift your daughter


We have discussed this before.
In 2003, no one had 40L as today no one has 1.6 Cr. You only had to pay 4L as down. Rest was financed by banks and you were required to pay an inflation adjusted interest rate of close to zero in an ever depreciating currency and tax benefits to boot. Who would have lent you 36L at 0% to buy gold in 2003 or even today?

The bubble inflated in 10 years and deflating it would take another 10. The only problem with that is if you could not buy in your late twenties or early thirties, you will have to wait till late forties or early fifties. Just like the old times.

DhImAn said...

Pawan, you are more correct than you can imagine.

You are correct that then as now, very few have cash to pay to buy gold or real estate outright.

But do you realize what you are effectively implying?

You imply (correctly) that the rise in real estate prices could not have been possible were it not for lending by banks, i.e., that this is a credit fueled bubble.

But more importantly you correctly assert that nobody lends you money to buy gold, the implication being that the rise in prices (a very loose term I use to describe the gold/rupee ratio) has not been credit fueled.

And thus, your own understanding implies that RE will crash more in real terms.

This is because as the credit engine that fuels RE loses steam, RE will fall - but that asset which is not credit fueled will be less affected, thereby making RE cheaper when priced in that asset, namely gold.

It is also a corollary that if the RE bubble is credit fueled, then a withdrawal, or even reduction in the rate of growth - of that credit will cause a rapid slowdown. The bubble may have taken 10 years to inflate, but it won't take 10 years to deflate. All it needs is enough people to believe that prices are falling, and you'll see it crash.

Axiomatically, there are few steep rises in the markets, only steep falls.

Anonymous said...

Folks, are the numbers true??
http://www.dnaindia.com/bangalore/report_prices-of-vegetables-not-a-pea-sized-problem_1686819

Anonymous said...

So what is your problem with young couples making 2L per month?

All I am saying you moron, is that becuase couples are earning 2L per month financing RE is not an issue. You seem like a frustrated person you idiot. Get lost

DhImAn said...

Pop Quiz: Which is the most expensive precious metal today - Silver, Gold, Platinum, Palladium or Rhodium?

aam aadmi said...

@Anon at 12:57
Veggies show a lot of seasonal variation, to get a proper idea of prices you'd have to average them over one-two years.

I can certainly talk about rice from my memory, what used to cost 25 five years back now costs 50. Same goes for milk, what was 20 six years ago is now 40. So that's an inflation rate of about 10-12%.

Pawan said...

Nowadays young couples with double earnings make 2 lakhs per month easily. Even if they spend 1 lakh on house and another one for investment they still have 1 lakh per month.

And you call me a moron?

Pawan said...

And thus, your own understanding implies that RE will crash more in real terms.

I don't have an iota on doubt on that.

However, my point is even with a drop in real terms, affordability may not go up for the masses because their salaries will go down too in real terms (Zero hike by Infy in a 10% CPI environment).

When I say RE bubble will deflate slowly, I mean affordability will improve slowly.

Anonymous said...

// -- Nowadays young couples with double earnings make 2 lakhs per month easily. -- //

Do you guys realise that 2 Lac+ income is what you'd in USA? These figure just don't seem right.

aam aadmi said...

RBI seems to be intervening a lot in the forex markets lately to keep the rupee afloat. Looks like it's not working.

The only other option left is raising the interest rates, which isn't discussed in mainstream media because it's the 'going nuclear' option that no one wants to talk about. But my guess is that it will ultimately come because Rupee falling to 60 will set of a lot of systemic things in motion, things which will piss off people and impact elections negatively.
So politicians will opt for the easiest way out which is to sacrifice GDP growth at the cost of maintaining lower inflation.

Anonymous said...

"So politicians will opt for the easiest way out which is to sacrifice GDP growth at the cost of maintaining lower inflation."

No politician or Central Banking Criminal (CBC) has made this choice in any country worldwide over the past 15 years except maybe Australia.

But Australia is a far-flung exception to the rule. Given a choice between growth and stable prices, politicians and CBCs will always opt for the former.

aam aadmi said...

No politician or Central Banking Criminal (CBC) has made this choice in any country worldwide over the past 15 years except maybe Australia.

Yes I am aware of that but you must realize that finally in an electoral democracy people are going to vote with their feet against any kind of hardship, whether it's inflation or austerity. Look at what's happening in Europe, politicians who sided with the bankers have been thrown out and replaced by populists. Same thing will happen here under pressure, you will see more and more Mamata Banerjee's in action.

People don't care about economics or long term solutions they want their subsidy and they want it now. You will find people clamoring for subsidies in the face of rising prices and providing subsidies is impossible when Rupee is at 60.

In spite of whatever the media says, the truth is that public opinion matters, ever seen a politician talk about superstition or religious taboos or about regressive social customs? No, because these things are not tolerated by the people and politicians who go against these norms are booted out.

In spite of all the corruption talk in media the truth is that the vast majority of Indians do not care about it as much as they do about caste or religion. Also it is pervasive in the society which is why it refuses to die.

Politicians represent us and spring from us, a decay in political system is actually a decay in the citizens. They are not some far removed entity, given a hard choice they will take the most selfish choice just like anyone else.

If you look at society from an objective angle instead of a romantic viewpoint a lot of things begin to make sense.

aam aadmi said...

For example take the latest duty hike on gold which has been promptly rolled back due to pressure from the gold trader lobby and other political parties because gold has a sentimental value for Indians.

Gold imports account for roughly 30% of India's trade deficit. If I was the FM, the solution would be quite clear to me and I know that our dear FM is thinking on the same lines, put a 20% import duty on Gold, but do you think Govt can implement it. They can't even maintain a 4% hike.

Anonymous said...

"If you look at society from an objective angle instead of a romantic viewpoint a lot of things begin to make sense."

Unfortunately, it is you who are looking at things from an uber-romantic viewpoint.

The rich have for long had an unwritten compact with Politicians and the CBCs. Here's (for the first time) a written compendium of this compact:

1. We [the Rich] will not hold any significant portion of our wealth in INR.

2. Most of our wealth will be held in assets like RE, Gold, Stocks, etc.

3. We will get leveraged very highly. Much of our wealth will come from our ability to lever up and pay off the true value of our debt at a massive discount through depreciated currency (which is where the gummint comes in @ step 4).

4. The gummint will "do good" for the people by printing money with casual abandon and giving the people goodies with the printed money. This does not hurt us at all because we don't hold our wealth in INR (see 1 above). Rather, it is middle-class savers (teachers, railway clerks, bank tellers, sales clerks and secretaries) who will have their wealth raped and pillaged.

5. The depreciation of the INR serves a dual purpose: it gives the hoi polloi an artificial sense of well-being while we get to pay off our debts in depreciated currency through the massive transfer of purchasing power from the middle-class savers to us, over-leveraged debtors.

The above is the formula the country has been running on for decades. Elections have been held throughout this period.

Nothing has changed. Nothing ever will.

arupriya verma said...

I wanted to write a little comment to support you and wish you a good continuation All the best. JaypeeGreenstownship offers Resale Flats in Jaypee Greens Greater Noida call for best Deal@8586 078 215

DhImAn said...

Gold imports account for roughly 30% of India's trade deficit. If I was the FM, the solution would be quite clear to me and I know that our dear FM is thinking on the same lines, put a 20% import duty on Gold

You probably know this already, Aam Aadmi, but what you propose is going to be an utter disaster.

First, if you put a 20% duty on gold, imagine the arbitrage opportunity. For every milligram you smuggle into the country, there is an instant, guaranteed 20% profit. This return is far beyond the hopes and dreams of any mafia-politician-builder nexus and what they could achieve with land deals.

Overnight, RE would crash, gold smuggling would be a huge industry, crime in Mumbai and other port cities would skyrocket, ordinary people would smuggle gold in in their bodily orifices, customs would institute mandatory strip searching of passengers arriving from abroad... it could go to any lengths, right - the law of unintended consequences and all that...

Even at a 2% duty rate, there is still huge arbitrage opportunity; the demand for gold is one of the things you can generally count on - and an instant 2% return is still an annualized rate of... infinity.

Second, a crash in RE would not go down well with most people, who bet their undershirts and underpants on real estate going up year after year, and there would be riots on the streets, with raging inflation and crashing RE.

I could go on, but you get the picture, yes?

I'm certain that you thought of all this, and your comment was more as a joke, right?

aam aadmi said...

Nothing has changed. Nothing ever will.

Your conclusion is correct (human nature has not changed) though your logic is not, again it's the conspiracy theory way of looking at things. The rich are not some monolithic entity, neither are politicians or babus, we all have varying degrees of leadership roles and bureaucratic duties within the society.

The rich have a lot of influence sure but it's an exaggeration to say that they control everything.

If that were so, Reliance wouldn't get penalized by the govt, Tata wouldn't be kicked out of WB, Retail would be open to FDI, farming would be open to FDI, so would many other sectors of our economy. After all FII's are many times richer than our rich trader class.
Also the rich wouldn't have 80% top tax rate on them during Indira Gandhi or in the reign of Jimmy Carter. Also please note that Monsier Hollande is planning a 75% tax rate on the top earning individuals, so much for rich power.

Anonymous said...

"First, if you put a 20% duty on gold, imagine the arbitrage opportunity. For every milligram you smuggle into the country, there is an instant, guaranteed 20% profit."

Your assumption here is that smuggling is very rare. If smuggling becomes fairly common (as you suggest it might), then the spread will decrease to much less than 20%.

By way of example, during prohibition, theoretically, a bottle of liquor would be priced near infinity. However, that did not happen. The market was able to factor in the actual availability of liquor in the market while making pricing decisions.

Anonymous said...

"The rich are not some monolithic entity, neither are politicians or babus, we all have varying degrees of leadership roles and bureaucratic duties within the society."

I never said they were. Can you point to any errors or flaws in my points (no. 1-5) in my post above?

If you can, please specify exactly what they are.

aam aadmi said...

@Anon above

You talk about an unwritten compact between the rich, CBC's and the Govt. That itself implies that the rich are some kind of group who have the capability to forge agreements even if they are unwritten.

Truth is that there is nothing like that, the rich come in all kinds of flavors, from the economically illiterate rich farmers, zamindars and former rajas to the suave NRI MBA's who earn millions abroad. To imagine that they all break laws in the same ways is naive. I bet many of them don't even know the basics of economics and are just rich because of inherited wealth or businesses. Then there's the whole gamut of wealth ranges, from Ambani to your local corporator.

The rich do not arrange themselves into one class, they are organized just like anyone else, as the farmer lobby, the telecom lobby, builder lobby etc etc, sometimes their interests align sometimes they don't and at those times they fight with each other for influence.

But all of them try to influence laws just as the dalits or jats band together to demand reservations. It's not difficult to see the parallels.

The world is a complex place, you can't just put it down in four or five laws.

aam aadmi said...

@Dhiman
You live in your own universe man. In India gold imports were banned (barring a few exceptions, required Govt approval) from 1947 to 1992 and the domestic production was controlled by the Govt.

See this link by WSJ
http://blogs.wsj.com/indiarealtime/2012/03/23/can-india-succeed-in-dimming-golds-glitter/

And this link
http://goldnews.bullionvault.com/india_gold_supply_110620083

There was rampant smuggling, but there were no riots on the street, were they? I don't recall any. And you manage to say that putting a 20% duty on it will set off riots now??

The truth is that Gold has very little economic value, esp in India since there is no chip manufacturing. Putting a duty on it or even banning it will create a black market but will change little else.

DhImAn said...

You live in your own universe man

Why, just because you disagree with me?

There was rampant smuggling, but there were no riots on the street, were they?

No, but that state of affairs was liberal compared to the British Raj and the freedom struggle. Today, after India has liberalized this much, and with a much more interconnected world that we live in, putting in a regressive measure like 20% import duty on gold will lead to a value drop in RE; and when the hitherto asleep masses start seeing significant loss of perceived wealth caused by the government, you can expect protests at least.

Government will move to quash those protests, and it will turn ugly.

The fact is, man - that you think exactly like an indoctrinated establishment tool, not that I live in a different universe.

You fail to see the unintended consequences of your actions, particularly because of temporal and spatial distance between cause and effect.

You erroneously assign random cause to effect because of temporal or spatial proximity and come up with utterly ludicrous ideas like a 20% import duty on gold.

Unfortunately for humanity, your ilk is plentiful, and greatly permeates governments and bureaucracies, which means that the probability of such asinine ideas becoming law is far from being minuscule.

Heaven help us all.

Anonymous said...

"20% import duty on gold will lead to a value drop in RE"

I don't understand this. How will a 20% import duty on gold lead to a value drop in RE? If anything, the import duty will only increase the actual street price of Gold in India. This is inflationary for RE. Not deflationary.

Am I missing something? You typically speak a lot of nonsense, but I'm ready to stand corrected if you can come up with a convincing explanation.

Parth said...

Real house price in US have remained the same between 1995 and 2012

http://www.economist.com/node/21553459

Anonymous said...

@Dhiman - "RE will fall - but that asset which is not credit fueled will be less affected, thereby making RE cheaper when priced in that asset, namely gold."

Actually, gold too has benefited from a credit bubble. Think Leveraged gold ETFs and hedge funds (not in India, but in the West).

This too shall pass. Gold will lose its current glitter and go back to being a safe asset plodding along at inflation like it has for 5K years. This time is not different.

Polt

Anonymous said...

@Parth - "Real house price in US have remained the same between 1995 and 2012"

See the case-shiller index. RE prices in the US have grown at about 0.5% above inflation for over a 100 years.
See the Herengracht index for Netherlands. It shows real RE prices almost flat after 300 years.
Similar data for France is available going back 800 years. Same growth rate. Marginally above inflation.

Yet, folks here in India treat homes as a one-way ticket to prosperity, based just on 10 year price behaviour.


Polt

Anonymous said...

"See the case-shiller index. RE prices in the US have grown at about 0.5% above inflation for over a 100 years.
See the Herengracht index for Netherlands. It shows real RE prices almost flat after 300 years. "

US and Netherlands don't have a population that breeds like rats.

GSM said...

US and Netherlands don't have a population that breeds like rats.

Japan does have a very high population density, but we are entering 23rd year of falling prices and deflation

DhImAn said...

How will a 20% import duty on gold lead to a value drop in RE?

So you're a mafia don - would you rather put your time and effort into forcibly evicting slum dwellers for some politician-builder so he can make some 20% gain over the period of a couple of years, or would you rather set up a smuggling operation that gave you an instant 20% return on every gram of gold you smuggled into the country?

While you may think that this would increase shortage of flats, in reality it would become an unmanipulated, or at least less manipulated market; which would find a much healthier natural equilibrium.

Think back to before the liberalization - most mafia types in Mumbai and Chennai were happily engaged in smuggling gold and other things into the country, and real estate was stable for decades. The land shortage argument was as valid then as now.

If anything, the import duty will only increase the actual street price of Gold in India. This is inflationary for RE.

Suppose the government announced that effective Jan 1, 2013, a 20% duty on gold imports is going to come into effect.

What would you do today? Wouldn't you buy as much gold as you could before the deadline knowing that you will be afford 20% less come Jan 1?

Wouldn't other people do the same? Wouldn't that direct rupees away from other expenses, RE included?

Also, nobody sells gold to buy real estate; so I fail to see how that is inflationary for RE.

If smuggling becomes fairly common (as you suggest it might), then the spread will decrease to much less than 20%.

No. This may be true for TVs or stereos, but not for gold.

Understand that gold is fungible - one ounce is indistinguishable from another. All one has to do is legally import one ounce, and smuggle 1000. The 1000 could be sold as legally imported showing the same receipt of the legally imported ounce again and again.

Or knowing us Indians, we would simply pay some customs official to give us an endless supply of receipts for a small commission.

This guarantees a 20% profit instantly. Not 20% minus the expenses involved in smuggling, but really 20%. This is because even legally imported gold is not sold at spot prices, but spot plus some additional 5-6% for shipping and handling and so on.

When you can make 20% immediately, why bother acquiring land, making buildings, selling flats and so on - only to make 20% after a year?

Understand that this is an artificial arbitrage opportunity that only arises because of some regulation - and thus must guarantee virtually unlimited profits to someone.

Prior to India's liberalization, there wasn't much of something called a land mafia. There was a very well organized gold mafia though.

You typically speak a lot of nonsense

You imply that I am a fool and you are a wise man capable of judging what I say as "nonsense". However, it is also true that the words of a wise man seem like nonsense to a fool.

So, I encourage you to argue the topic, not fight the speaker. Perhaps you'll learn something, and perhaps I will too.

Anonymous said...

"US and Netherlands don't have a population that breeds like rats."

Population density of Netherlands is higher than that of India.

DhImAn said...

The truth is that Gold has very little economic value, esp in India since there is no chip manufacturing.

This is a very pervasive theme - gold is a dead asset, it has no economic value and so on.

I've argued this many times before, but I'll do it again.

1. Gold in the present represents just a thing, something that can be exchanged for other things. This is called its purchasing power.

2. In the present, rupees or dollars also have purchasing power.

3. Gold's primary utility is transmitting that purchasing power through time, i.e., to the future.

In the present time, both gold and rupees represent purchasing power.

But in future, gold is the thing with the highest probability of retaining its purchasing power.

Thus, if you wanted to leave your great-great-grandkids the purchasing power of Rs. 1 crore, would you stuff Rs. 1 crore in 1000 rupee notes into a suitcase or would you keep 110 ounces of gold in a little box for them?

That is the fundamental value of gold. It allows you to transmit purchasing power over time like nothing else does.

It is precisely for this reason that central banks invariably hold gold in their vaults.

If gold is such a useless thing, why not sell all your gold (not some fixed small amount a la Washington Agreement whose purpose was to manage prices) and raise dollars or euros?

Why does everyone with significant wealth hoard gold? Why have they done so since time immemorial?

But more importantly, why do they do so even today while simultaneously bad mouthing it?

aam aadmi said...

Real estate report for six cities
The original four metros + Bangalore + Pune

http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=702064&num=0

What's surprising is that Bangalore looks the most affordable (except Kolkata) even though it has been classified as the most liveable city in India.

Anonymous said...

Guys, this blog is useless. Mark my words. The same time next year RE in India will be up by 20% and people will still be buying. Yes it might not be middle class honest people but transactions will be there. Just yesterday a govt officer was caught in MP nad he had 100 crore rupees. Just imagine the amount of black money that is generated in Mumbai. If you have black money you really dont care if a flat costs 1 crore or 5 crore and where it is located.

Anonymous said...

Just wondering why the developers are not pitcing to the NRIs the way they did a few months back when the rupee was at 52. Will NRIs take the RE bait now?

Anonymous said...

// --
@Mango Man
What's surprising is that Bangalore looks the most affordable (except Kolkata) even though it has been classified as the most liveable city in India. -- //

Isn't Banglore the place where IT industry boomed the most?

GSM said...

Gold's primary utility is transmitting that purchasing power through time, i.e., to the future

Hmm...the main question is WHY would Gold preserve purchasing power. As long as people are willing to barter their labor or assets and it does not give either party an undue advantage. Just wondering whether the same will hold true if the alchemist are able to convert Lead to Gold or the world discovers a city of Gold before your grandchildren can cash in?

aam aadmi said...

Hmm...the main question is WHY would Gold preserve purchasing power

Because people like gold, and have done so for centuries, there is no other reason. On the plus side it has some desirable properties like being non-corrosive, malleable and rare which makes it ideal for coins but that property is not unique to gold. It shares that with some other elements as well.

It's just that it's the most widely accepted store of value. What's notable is that many ancient civies used salt, copper, silver as store of value too, of course cultivable land has always been a store of value. I doubt that if you gave gold to some tribe from Amazon they'd appreciate it much, a steel machete on the other hand would be desired the way we desire diamonds.

Pawan said...

If you have black money you really dont care if a flat costs 1 crore or 5 crore and where it is located.

Similarly, if you don't have the money you don't care if the flat is 1 crore or 5 crore.

DingDing said...

And sheep continue to follow the golden wolf !

prophet said...

According to a 400-variable of the global economy, we are seeing a massive crash coming. The current fall in BSE Sensex will stop at 5000, before it starts going up. Here are some predictions with associated probabilities:

Greece leaves EURO by 2012 - 0.95
PIGS all default in 2013 - 0.80
Another Dow/NASDAQ crash in 2013 - 0.78
BSE Sensex at 5000 in 2013 - 0.65
Gold at Rs. 40000 in 2013 - 0.77
Gold at Rs. 30000 in 2013 - 0.88
Gold at Rs. 20000 in 2013 - 0.25

Cheerio!

Anonymous said...

@aam admi - "What's surprising is that Bangalore looks the most affordable (except Kolkata) even though it has been classified as the most liveable city in India."

As per the data, the price/rent ratio in Indiranagar is as high as 1000 for residential areas. For other places in Bangalore it is around 350.
I am not sure this can be called affordable to buy. Rent yes.

aam aadmi said...

@Above
To get an idea compare the posh areas of Bangalore vs the posh areas of Mumbai or Chennai. You'll get the idea

aam aadmi said...

Correction to my earlier analysis
Hyderabad is also included in the data and it's cheaper than Bangalore, but still Bangalore is way cheaper on an average compared to Delhi, Mumbai and tad lower than Chennai.

GSM said...

Because people like gold, and have done so for centuries, there is no other reason

People used horses and swords to fight a war for centuries. Is that of any use today? The question for me still remains "WHY"? Anyone?

DhImAn said...

Hmm...the main question is WHY would Gold preserve purchasing power.

OK, I'll take a shot.

Everything carries forward purchasing power in time.

The future purchasing power of anything is not necessarily the same as what it is today.

Value is only something in the mind of a human being. There is no such thing as absolute value that transcends all species of life.

For everything you can assign a present and future value, you can also assign (or pretend to calculate, or guess) the probability of the variations between today's and the future purchasing powers (plural because different time frames would entail different probabilities).

People guess that the future purchasing power of gold will be by and large the same as today, or the probability that their gold hoard will become worthless in the future is rather low.

Again, this is a guess, something in the minds of humans, like all value is.

What we have going for this guess is that gold from Rama's time (an arbitrary time frame, just to illustrate a point) has essentially a lot of purchasing power today, but even a palace from that time...

The point is, in the long run, people overwhelmingly gravitate towards gold, and not real estate or other things. This is what gives it that unique ability to transmit value temporally.

Will this be true forever? Nobody knows, but if I were to bet, I'd bet on it being true for a long enough time to come.

aam aadmi said...

@GSM
Are you comparing horses with gold?

Gold is an element, there is no evolution in Gold, the periodic table will remain the same till universe dies. Horses were replaced by cars and cars will be replaced by something better, it's called technology. If someone discovers a metal that surpasses gold it will become the new gold but last I checked the periodic table is full.

As I mentioned before, Gold has properties which make it ideal for coinage, otherwise it's useless as a material for any other economic activity, Silver and Platinum have similar properties so they are also valued but mining Platinum is a downright pain so it wasn't used before the industrial age, silver is much more abundant so it's not as valued as Gold.

Anonymous said...

Another important reason is that Gold unlike other asset classes is not subject to technological or chronological obsolesence.

If you "invest" in cars, sewing machines, computers, rice or houses, each of those investments can go down. Cars/Computers can become hopelessly outdated even if preserved in new condition. Rice will spoil. Houses will crumble and eventually fall to the ground. The value of Gold however (for jewellery, industrial, other purposes) transcends time, cultures, civilizations, even eras.

This however does not mean that Gold is a "good investment" even relative to paper currency. Since all the above properties of Gold are already known to the market, the market must have already priced in the future depreciation of fiat currency when valuing Gold in present terms.

If you think Gold will exceed the rate of appreciation of other assets you must come across some other explanation that is known only to you and not the rest of the market. Explanations such as "Gold will always have value" or "Gold is the only asset that has held value over time" or "Gold will keep up with inflation" will not suffice. Such facts are already well known to the market and you can expect them to be baked in already into the present price of Gold.

Anonymous said...

To all the Gols bugs above:

Why is Gold high and has gone high??

--There was a massive money prinitng all across the world by central banks and a lot of investors have done hedging against inflation due to currency risks.

--Secondly, the real interest rates in most countries is negative due to high inflation.

All this talk about India and Rama has nothing to d with current Gold prices worldwide. It is the world market setting price of Gold price in the commodities market unlike other commodities.

If there is a slowdown again, Gold will not double in price as someone said, but would crash by 50%. There is no more room for printing left or lowering of interest rates by major economies.

Anonymous said...

Real Estate will not crash. All these discussion on this blog has been going on for over 5 years now.

Adjust to the reality.

Anonymous said...

Interesting Let the floodgates open

http://timesofindia.indiatimes.com/city/noida/Ajnara-first-to-scrap-project-in-Noida-Extension/articleshow/13102189.cms

DhImAn said...

Real Estate will not crash. All these discussion on this blog has been going on for over 5 years now.

You mean ever? As in never ever ever? As in not even 100 years from now? Not even 1000? Not 10,000?

Anonymous said...

"You mean ever? As in never ever ever? As in not even 100 years from now? Not even 1000? Not 10,000?"

100, 1000 or 10,000 years are for all practical purposes "ever" for most of us, given average human life spans.

As Keynes said, "in the long term we are all dead".

Indian RE could theoretically crash in the year 2795 C.E., but I doubt anyone in this blog will be around by then.

DhImAn said...

If there is a slowdown again, Gold will not double in price as someone said, but would crash by 50%.

So you're a deflationist. Fine.

Pray tell, in this deflation scenario you've laid out - a slowdown, and a crash of gold prices by 50% - what will happen to its purchasing power?

DhImAn said...

Indian RE could theoretically crash in the year 2795 C.E

I see. You mean that the probability of Indian RE crashing in the next say 700 years is absolutely zero.

And your supporting argument is something Keynes said when he ran out of logical and reasoned thought.

I rest my case.

skeptic's ghost said...

"If there is a slowdown again, Gold will not double in price as someone said, but would crash by 50%. There is no more room for printing left or lowering of interest rates by major economies."

You hit the nail right on the head - Central bankers cannot decrease interest rates to below zero.

If there is a systemic crash per probabilities discussed in this thread - there will be a war - and that time the only thing of value won't be gold but a bag or rice and a gun

The misery of 1929 and Great Depression was only "hard reset/rebooted" by World War 2

DhImAn said...

Central bankers cannot decrease interest rates to below zero.

Yes they can.

Anonymous said...

>>All these discussion on this blog has been going on for over 5 years now.>>

Wait for a couple of years buddy, we will have a grand celebration of this blog's 10th year anniversary of false predictions ;-)

Anonymous said...

Take care of corruption. Teach your kids good morals and ethics.

Focus on the root cause. Everything else will take care of itself.

You won't be happy even if you bought a flat for 10 lakhs and which becomes worth 10 crores if you live in a corrupt and bankrupt 3rd world country with a sham democracy and a volatile society.

Anonymous said...

"Pray tell, in this deflation scenario you've laid out - a slowdown, and a crash of gold prices by 50% - what will happen to its purchasing power?"

I'm not that poster (nor am I a deflationist), but in the scenario you mention the purchasing power of the same quantity of gold will remain absolutely the same.

Also see my post at 11:28 above. Gold is a fantastic asset, however it does not mean that makes it a great investment.

Pawan said...

Gold is a fantastic asset, however it does not mean that makes it a great investment.

What is money?
It is a tool with some purchasing power.

What is a great savings tool?
One that keeps your purchasing power intact.

What is a great investment?
One that lets your purchasing power grow.

By these definitions, if someone has money for buying 1Kg of Gold or an apartment today and that person invests it and is able to buy 1.5Kg of Gold or more than one apartment 10 years later after liquidating that investment, he really made money (as opposed to notional returns).

Once you start thinking of investments in real terms, you would also realize that world wealth can not keep increasing (because natural resources are fixed) and all investments put together are a zero sum game.

In a zero sum game, 50% of people will always lose money. So its best to not be an investor but be a saver. And the best saving instrument is gold.

DhImAn said...

I'm not that poster (nor am I a deflationist), but in the scenario you mention the purchasing power of the same quantity of gold will remain absolutely the same.

Even empirically that can't be true. Since gold is more desirable than say tricycles, do you expect the price of tricycles to also fall by 50%?

We can a priori establish that in a deflationary crash scenario, the prices of different things will fall at different rates.

Stuff you need for survival will fetch a premium - food, medicines and so on. Stuff that is frivolous will sell at a discount.

But it is precisely in a crash that people panic out of cash - they know that cash (fiat, paper money) has become more valuable - i.e., harder to get - so while everything is 50% cheaper, it is now twice as hard for the banks and other people you've lent to to return your money.

This generates a flurry of withdrawals, and if banks are not able to keep up, they sink. Naturally in a fiat money world, CBs must then step in by printing.

But as people realize this and try to escape the currency volatility, they flock to safe haven assets - as they have done for millenia - to gold.

Thus, even in a deflation, where everything becomes cheaper in terms of paper money, it is likely that the purchasing power of gold will increase.

History has shown this to be true time and again. Why will this time be different?

Anonymous said...

@Dhiman - "Thus, even in a deflation, where everything becomes cheaper in terms of paper money, it is likely that the purchasing power of gold will increase."

Unlikely. In a deflationary environment, people hoard cash not gold. You can become richer by simply spending lesser (that includes not buying gold). Fewer buyers for gold -> lower gold prices.

DhImAn said...

Gold is a fantastic asset, however it does not mean that makes it a great investment.

What have I been saying? That gold is an investment?

Gold is not an investment - it is a way of postponing your consumption from today to the future, in the expectation that tomorrow you will be able to better afford whatever it is you want to buy today but can't or shouldn't.

That is called moving purchasing power through time - something gold has shown itself to be capable of par excellence.

For instance I like apples and oranges, but apples are very costly today and oranges are really cheap. I only have FUCU 100 (fuc*ed up currency units).

Unfortunately, my FUCU declines in purchasing power at the rate of 15% every day, so if I save my FUCU 100 for apples, I won't ever be able to eat them.

Worse still I won't even be able to eat the oranges today.

So what makes the most sense is to spend the entire FUCU 100 today - the fool will spend it all on oranges, but the wise man will spend FUCU 10 on oranges and FUCU 90 on something that lets him buy apples in the future - say USD. So the wise man will by FUCU 90 worth of USD and relax.

Change the time scale to years, apples to real estate, oranges to your pick of other material things, FUCU to paper money and USD to gold, and the same logic still holds.

That's the real purpose of gold. To allow you to buy a bigger house tomorrow.

I don't understand why it is so hard for people to get this.

DhImAn said...

Unlikely. In a deflationary environment, people hoard cash not gold. You can become richer by simply spending lesser (that includes not buying gold). Fewer buyers for gold -> lower gold prices.

Prove your statement, or at least substantiate it with logic and historical precedent.

Your simple statement doesn't have much weight without some logical, empirical or historical proof.

For instance you say "Fewer buyers for gold" - how do you know that there will be fewer buyers? What's the proof? What's the historical precedent?

In reality, gold's inverted demand curve makes more people demand gold during uncertain times, and history bears witness to this innumerable times.

You are wrong and you stand corrected. Redeem yourself by proving your stand, or by acknowledging your error.

Anonymous said...

@Dhiman - "For instance you say "Fewer buyers for gold" - how do you know that there will be fewer buyers? What's the proof? What's the historical precedent?"

If your cash is becoming more valuable simply by sitting in a bank, you postpone your purchasing decisions including that of buying gold.


"In reality, gold's inverted demand curve makes more people demand gold during uncertain times, and history bears witness to this innumerable times."
Not in 1980. See gold price charts.
Gold also fell from March 2008 to Dec 2008. This was possibly the time of highest uncertainty in recent times. The biggest banks in the world collapsed or were on the verge of collapse during that period.

I would argue that the current performance of gold is a credit fuelled bubble, thereby removing some of the stability that you say gold provides.

Anonymous said...

>>That's the real purpose of gold. To allow you to buy a bigger house tomorrow.>>

Ok Dhiman, If you don't take it personal, it appears you have been postponing buying since atleast 10 years from my understanding of your previous posts. If you bought a house with a leverage vs SIP in gold, Will you be able to buy a bigger house today? Even if there is a recession in the future, are you going to buy vs wait to get the lowest price vs wait for getting a more stable job outlook?

DhImAn said...

If your cash is becoming more valuable simply by sitting in a bank...

I already countered that. The only way cash becomes more valuable is in a deflationary scenario, and when that happens, it also becomes that much harder to actually get that cash out. Your banker can always update your passbook with a number stating you have this much in your account, but if you actually wanted to withdraw it, you'll find that you couldn't - not all at once anyway.

This is because whatever increases in value also increases in scarcity - not only for you and other market players, but also for the bankers, your insurance company and so on.

In fact, what happened in the US 2008 was a deflationary scenario. Cash became more valuable - US RE fell; and so did gold, but gold's purchasing power increased even during that deflationary time.

Another thing - in such times, currency volatility is high - and people realize this, and flock to safe havens.

One more thing you entirely ignore is that as soon as the first pangs of the deflationary collapse kick in, the response of various central banks and governments will be to inflate the money supply. The US did it in 2008, right on cue. They called it Quantitative Easing - QE1 and QE2.

This reaction of monetary authorities is more or less certain; making a long lived deflationary collapse all but impossible.

At the risk of repeating myself (again), let me tell you this - whatever causes a deflationary collapse that you think will cause cash to become more valuable will also spook people enough to get out of cash.

This mechanism has been witnessed time and again, and there has been no precedent in history wherein a fiat money has not eventually reached its true value, i.e., zero.

You argue that this time it is different. However sadly, history and logic are not on your side, and I've yet to hear a convincing argument (from anybody) that supports your case.

DhImAn said...

If you don't take it personal, it appears you have been postponing buying since atleast 10 years from my understanding of your previous posts. If you bought a house with a leverage vs SIP in gold, Will you be able to buy a bigger house today?

No, I won't take it personally. The answer to your question is a resounding yes.

Anonymous said...

>>The answer to your question is a resounding yes>>

Can you explain with numbers. A property of 5L in 2002 is worth about average 50L today. At 15% interest for 10 years, the EMI is 8k (Not even taking into account that interest rates nose dived to 6% by 2006). So you paid 8k*120=960k or 9.6 Lakh. The gold price during 2002 was Rs.300 and today is Rs.3000. Since you are doing SIP, lets take a median value of Rs.1500, so you have 9.6L / 1500 = 640gm of Gold. At today's price of 3000/gm, you have 640gm so 640gm * Rs.3000/gm = 19.2 Lakh and 19.2 Lakh < 50 Lakh the worth of your property. The problem is Gold enthusiasts like you always argued that Gold increased 10 folds and property also increased 10 folds. But you clearly see the magic of leverage here. Am I missing something?

aam aadmi said...

Once you start thinking of investments in real terms, you would also realize that world wealth can not keep increasing (because natural resources are fixed) and all investments put together are a zero sum game.

Exactly. The economy is a sideshow, sort of like a Hindi Film's comedian, cash or even gold won't count for anything if environmental capacity degrades. Though gold is certainly a much better choice if one has to save.

The conventional economy is bound to crash in a few decades as oil production slowly declines, effects of climate change become more apparent and the environment completely degrades.

It's better to invest in skills that will be useful in a more local world than to chase money whether gold or fiat.

Your present income should be put to good use like for example learning useful skills such as cooking, farming, machining, carpentry or buying useful tools. One can even think of getting a degree in renewable energy or agricultural sciences.

Also if possible think about moving to a better place which will let you cope better. India is certainly not on that list, maybe some areas are but most of India isn't. As the first step lose weight, lose unnecessary possessions, adopt a simpler diet and prepare yourself mentally for such a world. Even if a crash doesn't happen in the short future it will give one peace of mind.

Anonymous said...

@Dhiman - " The only way cash becomes more valuable is in a deflationary scenario, and when that happens, it also becomes that much harder to actually get that cash out."

Wrong. If cash becomes more valuable just sitting in a bank, then people will put more money into the bank (save more) and not withdraw it. Ask the Japanese, who have pretty much had close to zero inflation and negative inflation for sometime for over a decade. They keep giving the money to the banks and investing in govt bonds. What do you think keeps Japanese interest rates super low despite a super high debt/GDP ratio? Its the high savings rate.

DhImAn said...

Can you explain with numbers

Your numbers have assumptions built in.

Assumption 1: RE went from 5L to 50L. In truth properties have gone from maybe 5L to 20L.

Assumption 2: Rs 1500 average price for gold purchases. People buy on dips, and the price was only about 450/gm until 2005 or 2006. Thus, a cost average would be closer to Rs 800, not Rs 1500.

Plug in these these new numbers, and your RE goes to 20L, you paid maybe 8L for it (including interest), so you have 12L today.

With gold, you have 8L/800 = 1000g, which at today's prices is about 29L, and you made a cool 21L.

See, just a minor tweak and numbers start painting a different picture. It is hard to generalize using specific numbers on a personal basis, so I don't prefer doing that.

I interpreted your question to be specific to me, so in my case, the answer was yes.

DhImAn said...

Its the high savings rate.

Ah the easily discredited savings glut BS that Bernanke spewed a while back. BS never dies, just gets recycled.

Money sitting in a bank doesn't become more valuable. If it earns any interest, it becomes more in quantity - while at the same time each monetary unit could be becoming more worthless.

For a monetary unit to become more valuable, its demand must be more than the supply; and that implies disinflation and likely deflation.

No monetary authority in the world is currently (even relatively) reducing the money supply. Ergo...

It's that simple.

Anonymous said...

"What is a great savings tool?
One that keeps your purchasing power intact."

Ok. I'll explain this simply so even birdbrains can understand it: ALL THESE FEATURES OF GOLD ARE GENERALLY KNOWN TO THE MARKET AND ARE ALREADY PRICED INTO THE CURRENT MARKET PRICE OF GOLD.

Think of the TIPS US security. It is supposed to perform a function like Gold (i.e. keep up with inflation). In reality, it has a negative yield. Why? Because the ENTIRE MARKET KNOWS HOW THIS PRODUCT WORKS AND ALREADY PRICES IT AT A PREMIUM SUCH THAT THE VERY INTRINSIC ADVANTAGE THAT THE PRODUCT POSSESSES DISAPPEARS.

Sorry to drum this in, but I can't understand why otherwise intelligent people can't understand this simple fact. At its core, Microsoft is a great company with stellar annual profits, but EVERYBODY KNOWS THAT AND HAS ALREADY PRICED THAT INTO THE STOCK PRICE, as a result the STOCK PRICE HAS BEEN FLAT FOR OVER A DECADE.

DhImAn said...

ALL THESE FEATURES OF GOLD ARE GENERALLY KNOWN TO THE MARKET AND ARE ALREADY PRICED INTO THE CURRENT MARKET PRICE OF GOLD.

Oh. My. God. This is absolutely the most amazingest thing, the deepest truth, the secretest knowledge, the key to unlocking the secret of the universe that we've all heard in a long time.

Not.

What you're harping on about, like we are a bunch of birdbrains... oh, wait - you called us that to our collective faces - is called the Efficient Market Hypothesis.

Thank you, we've known about that for a while, and there's significant disagreement about the validity of the hypothesis.

The word "hypothesis" should give you a clue - it never rose to beyond a hypothesis, i.e., a conjecture.

If you feel we've been ignoring you, causing you to shout (use all caps), then please understand that it is because we already know what you're saying and have already priced it in (actually discounted it) as more or less a hypothetical conjecture and not deserving of much of a response.

Anonymous said...

With respect, the people on this board wouldn't recognize the Efficient Market Hypothesis if you beat them across their faces with it.

It's ludicrous to whine "Gold, Gold, Gold!" when not explaining what information you have that the market does not already possess. Everybody knows about what Gold is and what it can do and it has already been blown up to meteoric bubble-like proportions (even when measured in currencies that are not fundamentally as flawed as the US$ or the INR, like the AUD or the CHF).

This cannot go on. Nominal Gold prices may hold and even go up when measured in USD or INR, but I would be stunned if the price of Gold were higher in 10 years when measured in SGD, AUD, RMB or even EUR/CHF.

Gold is in a GIGANTIC bubble when measured in those currencies and when it bursts there's going to be a lot of egg in a lot of very "smart" people's faces.

DhImAn said...

Everybody knows about what Gold is and what it can do...

That's the flaw in your argument.

People have been conditioned for a long, long time to view gold as a "barbarous relic" - with prominent mainstream economists heaping ridicule on it, and by extension, on people who would otherwise have bought it.

Even if the EMH were absolutely true, there is a cognitive bias against gold - in the US, you will be viewed as a kook, a breeder, a doom-and-gloomer, paranoid, delusional and many other derogatory things if you expressed any seriousness about gold at all.

Thus the EMH fails you right there - as soon as you account for flawed and incomplete information, and even disinformation.

You ask what information I have that the market doesn't already - that is downright silly, because it assumes that the EMH is true.

If the EMH is false, your question falls to utter irrelevance.

Despite this, I'm trying to answer you within the scope of the EMH - how do you know that the information that the market has is not downright false?

DhImAn said...

Oh, and I forgot to mention, you cannot mention "EMH" and "bubble" in the same breath.

If the EMH is true, then nothing is in a bubble - i.e., everything, like Microsoft, is already priced correctly, ergo it cannot be in a bubble.

Thus, if you say that gold is in a bubble, then you disprove your EMH argument right then and there.

Sorry, but you must not contradict yourself if we are to have a rational discussion.

Anonymous said...

"Oh, and I forgot to mention, you cannot mention "EMH" and "bubble" in the same breath."

Markets are weighing mechanisms over the long term (not the short term). Over the long term, the actual price of assets will be discovered by markets, just as happened with dot-com stocks or Florida condos. Gold is next, although I grant you that the correction may not be apparent in USD or INR.

But wait, aren't you the apostle for markets always being right here?

Anonymous said...

To All Gold Lovers & Haters,

In simple term in today's Macro Economic environment (which was foresee by many after Dotcom bubble in 2001, I came to know only in 2008-09)Gold is hedge against the stupidity of the Government all over the world.

If you want to term it as investment or hedge depend upon individual perception.

Is Gold in Bubble? Yes and No
Will Gold be in bubble? Yes and No

Why yes and No in both scenario because it's all depends on how the Fed will react.

If Fed want deflationary scenario going foreword at today's price Gold can be term as in bubble category.

If Fed wants Inflationary Scenario Gold is way undervalued because from now onward there will be some notable acceleration in Inflation nos. Untill now we were living under managed or creditable Inflation. Under this scenario Gold will become bubble one day when people will took out loan to buy Gold.

Anonymous said...

http://timesofindia.indiatimes.com/city/gurgaon/Is-this-how-cheap-life-is-in-Gurgaon/articleshow/13115408.cms

DhImAn said...

But wait, aren't you the apostle for markets always being right here?

No. I'm not. What I said in the past was that there was no "right" or "wrong" price for something.

That's because price is a discovered number; and if someone is willing to pay some number for something, there is no way to judge that as right or wrong.

Markets can be wrong however - because they represent the collective guesstimates of many participants; and when that happens the madness of crowds can kick in enough to completely distort people's perceptions.

Thus, if the "market" (i.e., its participants) guesstimate that real estate will go up forever (or for the next 700 years), then that is a delusion, and it is wrong.

There is a difference between "market" and "price". The former can be, and has been wrong on many occasions. The latter is just a number that cannot be judged to be right or wrong.

Anonymous said...

@Dhiman above,

I will just repeat what I told you earlier, which is a complete response to your latest nonsense:

"Markets are weighing mechanisms over the long term (not the short term). Over the long term, the actual price of assets will be discovered by markets, just as happened with dot-com stocks or Florida condos. Gold is next, although I grant you that the correction may not be apparent in USD or INR. "

DhImAn said...

Yeah, yeah. Like Keynes before you, when you are confronted with logic, or reason, or historical precedent, all you can do is yammer on about "weighing mechanisms" and similar unparseable and totally incorrect garbage.

As an example, you say "actual price of assets", without bothering to define what an asset is, and while making the assumption that there even exists an actual price that is some fixed, invariant, divine thing that markets may only iteratively but asymptotically come closer to "discovering".

Price is price, how is "actual" price different from a "non actual" price? What is a price that is not "actual" even? Define it, before you make such statements that lack even the basic requirement of definition of terms.

Your sophistry may impress others but I see it for what it really is - illogical, fallacious and downright stupid.

GSM said...

There is a difference between "market" and "price". The former can be, and has been wrong on many occasions. The latter is just a number that cannot be judged to be right or wrong.,

This is what I think. If market = m and price = p, m($) = p((t-T), a, b, c, d, e...) , a,b,c,d.. are external variables such as blackmoney, speculators, ease of credit, inflows, sentiment etc...and T is always the time shift for future outlook. So M($) set goes wrong when the trend reverses. I guess instead instead of talking the same thing in the blog over and over all day long, if we are smart to catch all variables and able to predict, we can make a good buck for ourselves before the crash sets in (and make money during the crash too!!)

GSM said...

I guess my above logic should answer the question on why RE in India is same/expensive than US, one of the reason future prospects.

DhImAn said...

if we are smart to catch all variables and able to predict, we can make a good buck for ourselves before the crash sets in (and make money during the crash too!!)

TathAstu!!!

That is precisely the point. If your stated goal is to make a bunch of money, then I'm with you all the way.

polt said...

Mumbai too is not different. So much for 'black money, population, politico-builder-bureaucrat manipulation, gold holdings, prices will not fall in INR, etc, etc'. Gravity always wins. This time is never different.

http://www.business-standard.com/india/news/mumbai-home-prices-fell-91between-march-2011-12-knight-frank-/164963/on

At 8% inflation, thats a real fall of 17%.

KSM said...

Slap in the face of RBI and slap in the **** of government.


India is going towards stagflation situation wherein growth will reduce and inflation will increase.

Just to help corporate mafia and real estate brokers govt is drinking the blood of common people and risking the future of the country.

Today's inflation figure is an eye opener. Let Subbarao Think

Anonymous said...

// Slap in the face of RBI and slap in the **** of government. //

A common man in India doesn't care about GOI. Indians are known to work around anything and everything... that's how corruption originated. We are different species.

why rising prices will be painful? aren't people earning alot more than before? Aren't people super duper rich WRT to RE and growth? Isn't Indian's bragging about superpower?

samix said...

Real estate seems to have gotten a big boost by the RBI lately in its latest circular, RBI has directed all exporters to convert 50% of their dollar account into rupee accounts to help firm up the rupee.

So now all the shrewd marwari traders are going to be good Indian citizens and convert 50% of their dollars to rupees...lol, it is going right into real estate, gold and silver.

Anonymous said...

@Samix - where do Marwari get dollars from in first place ? Are there USD black money ?

aam aadmi said...

@Samix

.lol, it is going right into real estate, gold and silver.

Marwaris are not stupid, if RE is declining nominally as the report from Mumbai suggests, why would they put their money in RE?

I think this decline was on expected lines, for most middle class people taking a new mortgage is a discretionary item, it's not a life and death matter like filling up your tank or buying vegetables. So when there is less money to take home due to inflation RE will tend to drift lower. And we haven't even started on the inflation thing yet, Rupee is at 53.94 and huge oil price hikes are coming on June 1st as soon as Parliament session ends.

Our dear FM must be praying for a good monsoon now.

samix said...

why would they put their money in RE?

Because where else can you put real big money to hide it away from the government ?

Anonymous said...

Marwaris are not stupid, if RE is declining nominally as the report from Mumbai suggests, why would they put their money in RE?

Relative to decline in paper currency holdings RE will do quite well. You would be foolish to try and seek absolute returns on your black money.

The risk of getting caught is much much higher in more transparent instruments such as stocks or corporate bonds.

Like I've said earlier, if you have a never ending spigot spewing water on demand you wouldn't worry about a few drops leaking here and there.

That's how pervasive corruption and black money is in our society. Those that have abandoned all ethics are mining it hand over fist. Trying to worry about a few extra percentage points of return is the least of their worries...

ShashankRao said...

Gold and RE are now falling knife.

US$ was the good bet, is the better bet and will be the best bet.
So utlimate winners are going to be those who visit this blog past 3yeras. Cheeers guys ;)

Anonymous said...

"US$ was the good bet, is the better bet and will be the best bet."

Ummm, I wouldn't be so sure about the "will be the best bet" part. US has trillions in unfunded liabilites (atleast 50+ trillion) that are just now coming due as the biggest claimants (boomers) are entering retirement. Only way out for US is to debase the dollar like crazy or end up bankrupt in a few short years. Even a 0% interest will not save them...

Gold is already pricing this in but there is still room for growth as the inevitable draws near.

Greece is a sideshow that is serving to distract from the main show. When Americans wake up in a couple of years to find out they are being herded to the poor house the real fireworks will begin...

Anonymous said...

Senior IAS officer Pradeep Shukla was on Thursday arrested in Lucknow by the CBI for his alleged involvement in the Rs 5,700-crore National Rural Health Mission (NRHM) scam.

You guys seriously think that people like Pradeep Shukla would be concerned if the looted money is fetching 20% returns vs. 2% returns!?!

Ofcourse not. Their time is better spent in finding more opportunities to loot somebody elses hard earned money (i.e. infinite return)

samix said...

Anonymous Anonymous said...

@Samix - where do Marwari get dollars from in first place ? Are there USD black money ?


If you are an exporter/importer then the government allows you to hold forex legally in special accounts for your business needs.

This money that the exporters are to convert to rupees is not black though, the government knows how much exists in the bank accounts in dollar terms, but once people convert dollar to rupees, I wonder how many will not invest it somewhere and let the cash lie around in rupee denomination.

aam aadmi said...

You guys seriously think that people like Pradeep Shukla would be concerned if the looted money is fetching 20% returns vs. 2% returns!?!

No they don't. But what's your point? That people like Pradeep Shukla can prop up the entire economy. They don't even pay taxes, a govt needs to pay salaries to the bureaucracy to keep the country running. People like Pradeep Shukla are parasites, they die when the host dies.

The host is the white economy not the black one. If anything the parasite is a burden on the host, not the other way round. No matter how many times this is refuted this meme refuses to die.

samix said...

No they don't. But what's your point? That people like Pradeep Shukla can prop up the entire economy. They don't even pay taxes, a govt needs to pay salaries to the bureaucracy to keep the country running.

You are assuming that government needs taxes in the first place, unfortunately in a fiat currency regime, the last thing that the
government relies on is taxes from it's people. Who needs taxes when you can print all the money that you want in the world ?

aam aadmi said...

Who needs taxes when you can print all the money that you want in the world ?

You forgot the sarc.

Anonymous said...

but why do we need white money economy when black money economy can perform better and everyone can prosper ? We should be asking employers to pay us in cash with no tax deductions... anyways many of the business are run that way in India, employees should also follow same path. To add more the taxes paid are not put to anyways good use like infrastructure development, at the most goes to subsidizing stupid unregulated programs.

srsly said...

Did something crash? No. You guys keep wasting your time.

Accept it, to live in India you must earn $4k+ a month and expect to buy real estate at 50 Lakhs - 1 Crore. While the poor schmucks with national average income would need some 3000 years to earn enough to buy own house at present rate. Housing isn't a human right, it's a luxury. Like food is a luxury in India, and of course dignity is a luxury only west can afford.

See you later, I'm off to scratch my ass while I watch NDTV on my LED TV, to wander around my shiny new apartment that has little-to-none earthquake resistance. Later I would go out to breathe the poisonous air and drink carcinogenic water. Goodbye.

Anonymous said...

No they don't. But what's your point? That people like Pradeep Shukla can prop up the entire economy

And you think the white economy is going great guns? Clearly the economy is f*cked. Even the "official" (i.e. fake) numbers cannot hide that fact anymore. GOI has borrowed on a massive scale and has nothing to show for it.

What you've witnessed is a massive theft. The GOI borrows on behalf of the people of India (i.e. primarily the middle class taxpayers who are on the hook to repay the debt) The money is borrowed to "invest" in massive projects which are a breeding ground for the corrupt in both the private and public sector.

There are thousands of such projects that go on every year. If you investigated the financial details you'd understand the modus operandi of the political-business class which has been robbing the country blind in the guise of "economic liberalization"

Talk to people in Greece today, they are still wondering where all money that their government borrowed in the last 10+ years has gone.

This is what 99% of Indians will feel pretty soon. Already you're hearing complaints about piss poor infrastructure, water and electricity shortages etc.

Anonymous said...

// This is what 99% of Indians will feel pretty soon. Already you're hearing complaints about piss poor infrastructure, water and electricity shortages etc. //

It don't matter, RE investments are up by 500+% and will grow indefinitely. Water, get it from tankers. Electricity, have a backup inverter. Infrastructure, in Mumbai haven't you read/seen Sonia inaugurated world class BWSL, high rise building, Malls, Cars, Fancy restaurants, etc and soon we will overpass China and then USA.

We are next in superpower by 2030.

Anonymous said...

^ Make that super-duper-effing-uber superpower by 2020. Environment will literally fix itself up at the awe from the glorious rise of our nation. Always remember, kids, INDIA #1!

Anonymous said...

Dear Anonymous above @ 6.49.
Aren't you the same guy who has been trolling the comments on the Economist site???

aam aadmi said...

Dollar at 54.23. Oil companies must be thinking, we will be the next Air India.

Anonymous said...

Now this is a shocker!
http://www.thehindubusinessline.com/companies/article3377482.ece

aam aadmi said...

@Above
I don't think this particular incident has anything to do with the Indian economy, the IT industry is actually in a good spot with a falling rupee, business will stagnate but not decline.

My own company (US MNC) is hiring tonnes of people, Indian operations never looked so profitable.

Anonymous said...

// My own company (US MNC) is hiring tonnes of people, Indian operations never looked so profitable. //

Exporters rejoice !! when Rs appreciates - Importers rejoice !! we have both parties in India, it's just that one will always jump and say India is shining !

Anonymous said...

1 USD = 54+ INR

Aaaaand 1991 has returned to haunt the people.

Anonymous said...

Hi. Is there a way to make money from what I think will be a crash all around, not just real estate. Like a "put" option on India or something??

Anonymous said...

// 1 USD = 54+ INR Aaaaand 1991 has returned to haunt the people. //

So are people on street rioting, protesting ? I still see people in fancy cars lined up at fancy restaurants. Many still holding crores worth RE and see no sign to sell for less and proudly spend lakhs and crores on weddings.

Please don't underestimate spending and savings power of Indians. We are incredibles !!

REBear said...

@Anonymous at 10:46 PM

So are people on street rioting, protesting ?

Did this happen in 1991 ? I remember I was 13 yrs old at that time and never heard of any crisis at that time even through parents or elders. At that time, we went for himalaya tour and spent money. Did RE not correct at that time despite we(middle class family at that time from tier 2 city) living normal life at the same time ?

skeptic's ghost said...

After 1990-1991 crisis & Manmohan's reforms with returning families from Persian Gulf due to first War actually fuelled the first round of RE bubble from 1991-1996 when the SE Asian crisis crippled it.

Then surprisingly in the 1999-2001 fake boom of the dot coms, RE remained in the doldrums until McManmohan was back in office.
(eventhough low interests by NDA govt fuelled rampant construction, the real bubble started after UPA1 took office)

And as people here hoped the crash of 2008 would bring down RE - that never happened due to Uncle Ben's printing press.

I still hold my call that only a war/catastrophe will bring down RE in INR terms.
In US$ RE has already tanked by 30% from peak value ($rupee was 39) to now its 54-55

Anonymous said...

Like a "put" option on India or something??

The only folks who profit from a crash are the ones who engineer it.

For the rest of us, the best we can hope for is to preserve our hard earned wealth / purchasing power.

Any upside from a crash would be a bonus.

aam aadmi said...

So are people on street rioting, protesting ?

Typical binary thinking. I am sure even during partition some people in India were sipping pina coladas on the beach. A few were living through hell though.

World is rarely that simple. The Brazilians survived a bout of very high inflation, Argentinians went through hyper inflation and yet life moved on. It will be the same here but don't think that things will be the way they were before the crisis.

You should read up on the catabolic collapse theory that's how real collapse occurs, stretched out over a period of time and ending in a whimper, not a bang.

Anonymous said...

http://www.moneycontrol.com/news/real-estate/mumbai-shows-negative-growththe-residential-sector_704081.html

The other shoe is dropping albeit silently.

Anonymous said...

>>My own company (US MNC) is hiring tonnes of people, Indian operations never looked so profitable.>>

This was the same point I made earlier. India's export import is well balanced except Gold and Oil (and coal). With rupee depreciation our manufacturing, software, tourism etc becomes very competitive while the demand for imports reduce bringing in a equilibrium. That doesn't mean we will not have a slowdown or a recession but we should be able to get out much quicker. Anyone who are praying India to become EU think again.

DhImAn said...

This was the same point I made earlier. India's export import is well balanced except Gold and Oil (and coal).

That is just like saying that you are in well balanced health except you have cancer, Alzheimer's (and COPD).

This has to take the cake for the most hilarious comment ever.

Anonymous said...

>>This has to take the cake for the most hilarious comment ever.>>

Dhiman, the problem with you is that you don't want to open your eyes to think of anything else that you do not already know. Yes, India has a high deficit because of Oil and Gold imports. But just think, if there is a recession around the world, oil will crash just like in 2009 giving a boost to reduction in imports and a instant stimulus to Industrial production. On the other hand if the inflation continues, as you say Gold will keep pace and Indian's who own Gold will not see their savings disappear. The problems are reversible unlike Euro which has problems like ageing population. Sorry to say you may be a genius in physics or mathematics but in basic common sense you are a moron!!

DhImAn said...

Dhiman, the problem with you is that you don't want to open your eyes to think of anything else that you do not already know.

Are you, perchance, my ex-mistress posting anonymously? I ask because you have all her qualities - like her, you think you know me so well, and like her, you criticize with a sharp tongue that would put a PMS'ing witch to shame. I'm having a hard time imagining you to be a man, especially one with the dignity to watch his words.

Yes, India has a high deficit because of Oil and Gold imports.

Sure. I know your supply-sided Keynesian argument (that Reagan made famous) - "deficits don't matter".

However better minds than yours and Reagan's assert that Deficits will matter.

You accuse me of a lack of common sense but it must be your abundance of common sense that makes you write "The problems are reversible". Your superior intelligence acknowledges the existence of the problem, and then because of the pure awesomeness that your intellect is, you say that it is reversible.

Hallelujah! We are all saved!

The very people who created the problems will come up, quite magically, with the solutions! Just have a little faith, people - don't listen to morons like Dhiman - he's just a fear monger.

If the rupee goes down, no issues, the dollar holder Marwaris will prosper and the exporters will reap a windfall. If the rupee goes up, have no fear, imported goods will become cheaper and so will oil and gold, so where's the problem?

If gold is causing this deficit - hell, just go ahead and slap a 20% duty on its import - our deficit will then magically disappear. While we are at it why not make that duty 100%? That would get so much revenue that we could make the most awesomest new infrastructure and that would make RE go up twenty fold!

Oil - how is that a problem? We can simply print up some more liquidy goodness that is the INR and happily subsidize it till the cows are blue in the face and come home eventually.

Answer me this: It appears that your stand is that nothing is a problem at all, or if it is then it is 'reversible'. Is this correct?

If it isn't then what the f*ck are you saying? (Other than, of course, indulging in an ad hominem attack that is the refuge of the ignorant.)

If it is, then you're just a typical establishment type, pimping and shilling for the very fools that got us into this mess.

Anonymous said...

Dhiman, what do you want me to answer. You have filled up both if else yourself ;-). Time will tell..

skeptics ghost said...

@Anonymous above Dhiman -
IF there is recession, who the F will India produce and export to?

Our domestic demand (like China's) is already at all time low due to people's penchant for Gold and RE and saving money instead of spending - if no body buys goods/services domestic or foreign, there wont be any gain by falling oil prices in a recession.

The printing presses of Uncle Benny and now the ECB can only print until people find out that devalued currency is worth nothing.

I would however argue that United States (and $) will continue to be
the worlds reserve currency as long as US has growing oil & gas reserves, and the worlds most powerful military. And the IT sector that services US and US based MNCs will continue to perform well as demand by Uncle sam continues (however unsustainable it might be in the long run - the next decade might still end up in muddle through 0% interest by fed)

Anonymous said...

Any builder / seller giving concession because of India's devalued Rs and deficit?

hmm... only cost of vegetables and other commodities rising.. Indians will go hungry but not sell RE for loss or less. Same applies for Gold. So inflation or no inflation RE will hold it's value.

DhImAn said...

Indians will go hungry but not sell RE for loss or less.

Put yourself in the shoes of a middle aged, middle class Indian father. You have two children, a flat or two, a well paying job, two cars, a two wheeler and your kids go to a good school. Your aging parents also live with you and you are proud to be a virtuous son who is family centered.

A bad time comes, the world is in recession, and the effects are even felt in India, which you considered immune. But things are still OK for you, you're still working.

Your older kid just got admission to a private medical college, sadly she couldn't make it to a government run college.

Your younger one will probably go to engineering college next year, but he's not likely to make it to a government run college either.

Then the worst case scenario happens - your company lays you off. Sadly the recession has hit its exports, and despite the cheap rupee, not enough people abroad are buying the stuff you produce.

Well, so far its bad, but not catastrophic. At least you have your savings.

But nature is cruel, and her cruelty gets worse when you learn that your poor mother has cancer, and needs chemotherapy and surgery.

With no job, a medical emergency and kids needing an education, you're now thinking - should you empty your savings account? Should you sell your real estate? Should you sell your gold? Unfortunately the recession has caused a market crash and now your RE and your gold will both only sell at a loss.

So perhaps, it is better that you not let your kids go to college and let your mother die from cancer rather than sell your RE or gold.

Hell no, you're tougher than that. You're an Indian! You'd rather go hungry than sell real estate or gold for a loss.

Anonymous said...

Dhiman bhaiji.

There are so many 'if' in your post by the time I got to 'else' part I was convinced that 'if' is everything and 'else' doesn't matter.;-)

How many middle class people would fall into your 'if' the scenarios? Again even if they did many Indians would choose to die than fight for themselves. Seen poor people in India? they sulk and pity themselves, at the most they riot and ask govt handouts, why can't they raise their standard by asking more for their services.

Talking of middle class, many white collared IT guys (e.g) would work 14 hours everyday because they think they get free AC and coffee and internet and they have nothing to do at home. They don't value their time in terms of money or quality.

Been and seen few Indians with scenarios you mentioned and NONE sold RE or gold, they simply fold their hands and pray to god blaming their 'kismat'.

BTW your last line in your post made sense. // Hell no, you're tougher than that. You're an Indian! You'd rather go hungry than sell real estate or gold for a loss. //

Anonymous said...

we dont need too many ifs. One is good enough. that if has messed up millions of people in different continents.

Most of the people live paycheck to paycheck.

*if* one loses his/her job and does not work for 6 months, he/she can not run the family. on top of that he/she has the make the morgage payments for the overpaid house. Either he has to
sell/morgage his gold or sell his house. Most of the people choose to mortgage gold. It is the backup plan for millions of Indians. Currenlty banks loan around 60% of LTV. If gold goes down, the money he/she gets from it will be low.
On top of that he has to make the payment for gold loan.

basically he/she can not survive long with gold. So the last and only option will be to sell the house for whatever price in a depressed market.

But India could be different ;-)

KSM said...

Guys,

It is only matter of months we see a real crash. The RE bears who waited patiently until now needs to be careful. Stick to your jobs. Because the crash will not leave anybody.

Sterling biotech Limited defaults in FCCB. Largest ever by an Indian company so far. Many companie are queueing up for default. Sentiment will go to worse from bad. Money flow will stop just like that. Real estate will crash. I am just waiting for the first set of panic sellers. Typically I expect these are corporate honchos who hoarded money in Real estate which will move to normal folks.

The Indian government is not at all acknowledging they have crisis to tackle. They bent RBI also to fall in their line. Last heard Subbarao was weeping inside the closed door in RBI for accepting govt ill advise of cutting interest rate. Now cut or not cut, inflation is going to shoot up because of Rupee value and imminent oil price hike.

I hope to see many RE defaults and consequently dent in the balance sheets of banks like ICICI, HDFC and AXIS. No.I am not a moron but these guys are responsible for this mad rush for housing loan. It is the time for so called 'RE investors to suffer'.

www.ksmfinanceindia.blogspot.com

KSM said...

Note that many IT companies are trimming their bench strength. These companies are known to lay off people without second thought.

Just a food for thought.


Yeah:) India is different.

Anonymous said...

"

It is only matter of months we see a real crash.
"

yep...going on since last 5 years and still counting!

Anonymous said...

Anon above:

You are such a uninformed fool. Go and read news at macro level. Otherwise, buy more flats for yourself and be happy.

Anonymous said...

and let your mother die from cancer rather than sell your RE or gold.

Unfortunately, I've known people in less dire situations that the one you hypothesize make this choice.

The ultimate tragedy is to watch parents who have lived their whole life like misers only to watch their kids become spoilt brats.

«Oldest ‹Older   1 – 200 of 280   Newer› Newest»