Sunday, November 04, 2012

Loan growth stonewalled by surge in house prices, crashes to 5-month low as buyers fail to turn up


Its Diwali and all as per the norm, this is the season for making big purchases like houses and cars. Unfortunately this year is turning out to be damp squb. Very high inflation has pushed daily budgets of most middle-class citizens to the brink. Nobody in the right mind is making any big purchases. Anybody with an account with a bank is hounded by retail bankers pushing loans and investment. Most are not buying the bait. Existing loan owners have seen their EMI tenure extended by 10 years to a maximum of 30. One friend of mine complained he has been servicing the interest for the past 2 years and has added almost nothing to the principal. The flat now has cost him more then what he has paid even after regularly paying the EMI. 

The black magic of compounding of loan interest is only experienced by the borrower. 


Brokers tell me that the market has a gone silent for loan properties over 1 Cr in Mumbai. The only buyers in the market are those who trade up/down their existing properties depending on their need. No Gujarathi NRI's are interested in the market. Hurricane Sandy has hit a  huge number of Gujarathi's business owners in NY and NJ. I just heard from one who wants to dispose of his Mumbai property.. Here are pictures from Hurricane Sandy. The devastation to property is just mind numbing.  With so much damage to houses it seems that housing rental market is going to give the newly displaced a new shock. 

Economic Times  article is here



MUMBAI: Growth in home loans has slumped to a five-month low despite banks showering potential buyers with attractive schemes and lower rates due to soaringreal estate prices. 

Buyers are holding back since an over-24% increase in prices in the past one year is putting homes beyond their reach despite banks lowering interest rates by 100-150 basis points in the past four months. A basis point is 0.01 percentage point. 

Home loans have grown by 11.2% year-on-year in September, compared with 15.6% in the same month a year ago. The latest growth rate for home loans is the lowest since April. 

"Interest rates have a limited role to play in house sales," said VK Sharma, CEO at LIC Housing FinanceBSE 0.54 %, India's second-biggest mortgage lender. "Home prices affect sales more than interest rates. If the house price range is within the capacity of the middle class, then sales pick up." 

Facing slowing demand for loans from corporates, banks have been pushing retail loans, especially mortgages, since it is one of the safest forms of lending. But steep prices are stalling sales. More than 80,000 flats remain unsold in Mumbai and the financial capital has lost its crown as the fastest-growing market. 

217 comments:

1 – 200 of 217   Newer›   Newest»
Anonymous said...

At least in US it is Mother nature. In India, disaster is baked in for the outskirts. When RE downturn hits in next 12-18 months, these areas will be the first to be abandoned as their is no constituency.

Investors are counting on development plans and infrastructure proposals which will never materialise. Atleast not in the timeframe that would make investment sense.

aam aadmi said...

What's happening in North Eastern US is the future of humanity. As broke governments are unable to replace public infrastructure that is broken down by increasing number of climate related disasters, things will stay broken for a long time. I recently read that the number of US households owning a generator has gone up from 3 to 12% in the last decade.

Welcome to the new paradigm. Learn some survival skills, they will be more useful than money.

Pawan said...

@aam aadmi:
Gold and guns then?

aam aadmi said...

@Pawan
LOL.
That's the problem with mainstream media. Survival is not about gold and guns alone, learning how to make a pickle to preserve food or knowing how to repair a CFL is as important as getting a gun, IMO guns are pretty useless in an urban environment and gold only has a very long term value, it's useless in the aftermath of something like say Sandy. Keeping some cash in hand makes much more sense. If only those

I feel the media drums up terms like guns and gold to discredit and denigrate preppers. In the good old days survival was about common sense, nowadays there's an iPhone app for that.

If something like Sandy or a country blackout hits people who know these things will fare much better than those who don't.

aam aadmi said...

Contd...
Just to put in a point...I don't think it applies that much to India since most Indians live in villages or small towns where they have to survive long power cuts and govt apathy. They are pretty self sufficient IMO, I can't say the same about people living in the cities.

polt said...

Lesser loans = lower profits for banks. The next qtr results will tell us whether the fall in loans was minor or not.

aam aadmi said...

@Polt
And with US presidential elections over, I expect things to only worsen.

Anonymous said...

worsen for mango man or for bank?

Natalia said...

India is day by day growing for this housing bubble. As the price rise are very sharp within a month....with this hike i dont knw by the time we plan to buy a home. I dont knw wether we would be able to buy it or not?

Natalia
www.groffr.com

Pawan said...

@Natalia:
If it helps:
http://www.firstpost.com/economy/home-buyers-on-strike-this-diwali-its-the-prices-stupid-514552.html

Anonymous said...

@Pawan
LOL, the post from Natalia was for SEO to get their site indexed from this blog which would increase the weightage and move it up the Google results.

Pawan said...

@Anon.
Its alrite. Not my loss.

aam aadmi said...

Anon at 6:55
Who is aam aadmi here ? The manual laborer (I am counting farmers in this) or the youngster working in IBM ? The answer is different for both of them.
Definitely worse for the bank.

Anonymous said...

Aam Aadmi ka Sapna Bas Sapna hi hoga......Jai ho CONGREssBABA ki !

ashu thakur said...

Thanks for sharing the useful post. I have looking information about the India real estate this discussion has solve my concern .I am very grateful. I am just blog visit and very happy to stop here.

Anonymous said...

GM closed, now JPM
http://www.firstpost.com/investing/morgan-stanley-eyes-100-mn-from-india-wealth-mgmt-biz-sale-518266.html

polt said...

Home sales dip 42% in NCR, 34% in Mumbai.
Bangalore almost flat with a 3% drop.

http://www.firstpost.com/fwire/housing-sales-dip-by-42-in-ncr-in-jan-aug-2012-516869.html?utm_source=fwire&utm_medium=hp

Diwali season sales will tell us more. But the indication from banks is that the festival season also will be dull for RE.

Anonymous said...

42%, 34% and 3% drop... that's it?? this means people are still buying and have tons of money. Bubble bursting.. forget it unless there is complete halt on sales and on top of it there should be lots of people in financial distress along with lenders. Basically asking for perfect storm... which ain't gonna happen in India.

Anonymous said...

Many banks are declaring huge fall in profits and huge rise in NPAs. There are declared and undeclared NPA's in Indian Banking System. Again, there is a difference between public and private banks in this aspect. Private bank in my opinion cook books more than public sector banks. If the declared NPA's are 2 % we can safely assume undeclaredd NPA's are atleast 10%. They say this undeclared NPA as 'restructured loans'. Many banks are fighting this impending danger. Let us see how this pans out. I love to see the banks which fanned real estate bubble to suffer the most.

Obama win is not going to do any good for struggling Indian IT industry. IT industry which is major contributor for real estate bubble will find it tough to grow. Salary increases cannot happen like before. One should note that the campus interviews are thud this year and the situation may not improve anytime soon. If we see 'the Hindu Opportunities' paper or 'Times Ascent 'paper we can understand the trend.

The sales of real estate is reduced by 50% in major metros and this trend is going to be intensified. Threatening poor RBI governor will not help. Allowing the bubble to burst would be good rather than saving the Real Estate Shark's ass

US, Europe and China is not going to grow anytime soon. I am really sick of calling the top for almost 2 years now. But I feel the time really has come. The more they support the more the fall would be.

But I am confused, how I would be positioning myself to face this??

Mangoman said...

Many banks are declaring huge fall in profits and huge rise in NPAs. There are declared and undeclared NPA's in Indian Banking System. Again, there is a difference between public and private banks in this aspect. Private bank in my opinion cook books more than public sector banks. If the declared NPA's are 2 % we can safely assume undeclaredd NPA's are atleast 10%. They say this undeclared NPA as 'restructured loans'. Many banks are fighting this impending danger. Let us see how this pans out. I love to see the banks which fanned real estate bubble to suffer the most.

Obama win is not going to do any good for struggling Indian IT industry. IT industry which is major contributor for real estate bubble will find it tough to grow. Salary increases cannot happen like before. One should note that the campus interviews are thud this year and the situation may not improve anytime soon. If we see 'the Hindu Opportunities' paper or 'Times Ascent 'paper we can understand the trend.

The sales of real estate is reduced by 50% in major metros and this trend is going to be intensified. Threatening poor RBI governor will not help. Allowing the bubble to burst would be good rather than saving the Real Estate Shark's ass

US, Europe and China is not going to grow anytime soon. I am really sick of calling the top for almost 2 years now. But I feel the time really has come. The more they support the more the fall would be.

But I am confused, how I would be positioning myself to face this??

Mangoman said...

We all know the open day light robbery which is happening in hospitals which has only increased in the recent past, but we are not talking about this fraud.

The medical expenses are increasing day by day and it is beyond the reach of mangoman these days. Many mangomen are insuring themselves to avoid cost. Now the doctors ( Indians are very innovative and unique) started charging more (mostly unnecessary treatments only to rip him off) for the people who are insured.. Ultimately it iis loss to the insurance companies. Unfortunately the insurance idiots are not realizing that. Now who is going to take this on? Another side effect is, once you get used to high costs they costs will be charged to non-insured also.

On second thoughts, I also cannot say insurance guys are idiots. They will just increase the insurance premium for next year. So ulitmately sufferer is mangaman. That is YOU and ME. A treatment to cataract costs 16K last year is 24 K this year. Imagine the kind of money the hospitals are making.

Long live India. Jai Hind.

www.ksmfinanceindia.blogspot.in

Anonymous said...

// -- treatment to cataract costs 16K last year is 24 K this year -- //

LOL. Sushruta must be spinning in his grave.

aam aadmi said...

But I am confused, how I would be positioning myself to face this??

Currency under the mattress works the best in the short term, although not the safest place to hide it. But you have to realize that bank runs won't be permitted in India so all NPA's will eventually be socialized. It will show up in inflation, my strategy would be to play both gold and cash and if a 2008 like crash again shows up(quite likely), use the small window of opportunity to convert more cash to gold.

Krrish Colombo said...

A lot of good information you have provided. Your post will help many people to invest their money in real estate market.
Regards
Buy Properties In Colombo

ranjeet yadav said...
This comment has been removed by a blog administrator.
Anonymous said...

Can the owner of the blog please remove the SEO posts?

Tarun Yenna said...

I am surprised, Bangalore only sees a 3% drop? That means sales are as good as last year (YOY). Isnt it ? If so, why would anyone think there is an impending crash ?

Anonymous said...

^ Banglore had saner prices than Delhi and Mumbai. At least for some localities.

Anonymous said...

After years of waiting, I just brought a house in malad for 1.5 cr. I have been tired of waiting.I had to succumb to pressure. Now, i will have to repay my loan my entire life.

My life is a waste from here on :(

To gain respect, i have sacrificed my life. What do u guys think?

"The above was a joke. Relax. :)

I am waiting.. i am happy renting till then. Who wants respect? lol. :) "

Anonymous said...

http://www.dnaindia.com/india/report_time-for-debate-on-inheritance-tax-chidambaram_1762238

Anonymous said...

^^^ Dear Chiddu,

Before you dazzle the common man with your brilliance, how about disclosing Swiss accounts held by you and your cronies?

How will you track this form of "inheritance"?

Inheritance is how middle class families have moved up the ladder. By hard work and sacrifice of previous generations which eventually allows a middle class household to accumulate enough to afford modern necessities such as a car or apartment.

The elite have their wealth stashed outside the reach of tax authorities or are taking advantage of loopholes like education or religious trusts and benami properties.

How about solving the blatant tax evasion first before reaching out for new venues to tax the common man?

Anonymous said...

The worst argument of the year: "No Gujarathi NRI's are interested in the market. Hurricane Sandy has hit a huge number of Gujarathi's business owners in NY and NJ."

I live in NJ and can attest 99% of Gujarati NRI have no interest in buying homes in Mumbai (Slumbai). Most are buying assets in US, where properties are realistically priced and yields are attractive. There is no reason to buy 1 cr property that gives rent of Rs 15,000 per month...

Anonymous said...

This seems like Crazy prices to me...

The extended suburbs of Mumbai (Kharghar, Taloja, Ulwe, Dahisar, Vasai, Virar, Thane, Dombivali, Kalyan) have excess supply, yet the prices are not affordable and only 25-30 percent lower against the suburbs of Vashi, Goregaon, Mulund etc. The typical price for a a 2BHK here is Rs 8o lakh, while a 3BHK costs Rs 1-1.2 crore! Given that these houses already command such a high value, any appreciation can only be expected after three to five years.

Anonymous said...

What do you guys think how large the drop got to be to meet saner price range? up to 40%?

Anonymous said...

@Anon - "What do you guys think how large the drop got to be to meet saner price range? up to 40%?"

Price/rent ratio of about 200 or lesser. If interest rates fall then the price/rent ratio can be higher.

During the last bubble in Mumbai prices fell 40%.

Pawan said...

Price/rent ratio of about 200 or lesser. If interest rates fall then the price/rent ratio can be higher.

Is this ratio written in stone?

Pawan said...

Is this ratio written in stone?

Let me rant some more.
That 200 times number means a PE ratio of 200/12 or less than 17.
This means that if you rented your house for 17 years, you would get the purchase cost of house back.

The yield comes out to 100/17 or approx 6%. Bank FD gives you 8-9%.
(Not including tax on either case.)

However, bank FD rates are not inflation adjusted. Rents are. So if we assume that a 1 cr. house earns rent of 3L today and rent goes up 10% every year, then after 15 years the rent would be 12L per year. So while the yield today is 3%, in 15 years, it will be 12%. FD will stay at 8-9% throughout.

So earning wise, the two are not very mismatched currently. So why take the pain of buying, maintaining and renting a house?

How about capital gains?
FD will give you back 1 Cr after 17 years. House will grow in value with inflation.

If you buy for 1 cr. and inflation for next 15 years is 5%, your house will be valued 2 cr. after 15 years.
If you buy for 0.7 cr. and inflation is 10% then your house will grow to 3 cr. after 15 years.
(This assumes house price tracks inflation which remains moderate to high but not too high.)

So what does one take away?
Inflation is the key. If govt. is going to increase money supply 15% every year that it has done for the last 11-12 years, that alone means money in the system is now 4-5 times more than it was in 2003. And it will not go equally in all sectors. RE is one sector which attracted more than its fair share. Houses have some aspirational value as well so their prices are up 7-8 times. If house prices stagnate here and money supply keeps growing (which you all know will) then in 2-3 years, house prices would have risen the same as money supply increase. So buy for 1.5 Cr today or wait 3 years and then buy for same price barring a big shock in between. But can one keep waiting for the black swan event?

polt said...

Pawan,
You missed out on house depreciation. Like any other man made object, a home starts depreciating the moment it starts getting used. Even if not used, the vagaries of weather will slowly but steadily devalue the home.

A 40+ year old home is pretty much worthless (in normal times). Renovating it, in many cases, will cost almost as much as building a new one. Furthermore, 40 years from now people will want to live in different types of homes. Who knows what kind of space age materials will be used then for building? How many of us today want to live in 40 year old homes with the red-oxide flooring, exposed electrical wires and the dingy bathrooms ?


Yes, home prices track inflation but maintenance costs will track inflation and age of the home. I picked 40years assuming an average working career.

Even today (in our bubblicious market) used homes sell for less than an unused one. As they should.

Rustomjee said...

Polt-- good point!!!

Another misconception to consider is
that people think that the land price will continue to increase and offset the depreciation in the price of the house.

Not true! Think about what will happen to already over inflated
land prices in Bangalore as companies move to Tier 2/3 cities. Kolkata land prices have stagnated in the last 20 years as industry/jobs have escaped. So, the brick and mortar stuff depreciates, but it is not always compensated for, by an increase in land prices.

Anonymous said...

@rustomjee: your example on kolkotta is not correct. better example is detroit michigan. after auto industry left, land prices crashed.
currently you can by a house in detroit for 10 thousnd usd!!!

Anonymous said...

You guys are missing a point.
40 years is a long long time.

Since its global, it is prone to everything that happens everywhere

Facebook valued at billions may be valued at $0.00 10 years from now just as myspace is.

The world will change. People wll live longer if not forever.

Locality is important for those whose homes are far away from the most happening places.

Now imagine transport becomes so fast that you can reach kashmir to kanyakumari in 5 minutes..

At this time pricing wont matter. All homes will have the same price since going from point A to Point B is so quick. You dont miss out on anything.

Before making 40-50 yr decisions keep in mind medical and transport advances. The world is going to change completely.

Invest in the future. Not some 2bhk lol which you know has been rigged and money goes to some politician who is smart enuf to save it for the future.

aam aadmi said...

All true except for one minor issue, housing prices appreciate with a growing economy, in a pure inflationary zero growth scenario your house may or may not track inflation. It's not guaranteed because your house is as valuable as what the highest bidder is willing to pay for it. If no one wants to buy your house it has 'zero' value even if you attach a certain inflation adjusted value to it in your head.

Housing is mostly built for immigrants, without jobs most immigrants have no reason to buy homes.

Anonymous said...

Housing is mostly built for immigrants

Correction, in India, it's for the children.

Most Indian women reproduce @20 vs. developed world it may be as late as 40.

So by the time a woman in Europe or US has her 2 children, the Indian woman is probably gearing up to be a grandmother.

Hence demand for housing is incessant but right now, builders seem to be only interested in satisfying needs of HNI and NRI instead of mango people.

Anonymous said...

Also, world population is forecast to become 9 billion by 2050 with most growth coming from the poorest regions such as Africa and India...

Good luck to all.

Anonymous said...

Detroit is not a good example. Detroit problem is that all the Whites moved out and it is now controlled by the blacks. Nobody moves into a black neighborhood due to the violence and other obvious problems. Lots of business moved away from the silicon valley, but you cant buy any houses for 10k. It is still one of the most expensive places to live( silicon valley).

aam aadmi said...

Correction, in India, it's for the children

Well duh, you can say that all real estate is for kids, will you not give your stuff to your kids ? But kids don't sign the sale agreement do they ?
Most of the RE in cities is bought by immigrants to the city, just look at the numbers, even in cases where it's bought by speculators it's meant to be sold to new immigrants.

Anonymous said...

Outsourcing to increase now, since Obamacare is now a law. All the business with over 50 full time emp must offer insurance or else pay a 2000 dollar fine, from the 31st employee. 30 hours is considered full time. You will see business owners chopping full time empl, and hiring more part time empl. Good for India.

Pawan said...

@Anon
Outsourcing to increase now

This is good for us. Govt. can also allow rupee to appreciate a little in this case. That will help our oil deficit too.

I would also stretch it a bit to say that a strong rupee and poor growth in rest of world will lead to cooling off in commodity prices, inflation and hence resulting in drop in the cost of construction which will make housing affordable.

Anonymous said...

// hence resulting in drop in the cost of construction which will make housing affordable. //

Are you really this stupid? Construction cost is not the reason of unaffordable housing.

Anonymous said...

Double hits for SBI. Higher NPAs and lower loan growth

http://www.business-standard.com/india/news/sbi-operating-metrics-continue-to-deteriorate/492223/

Pawan said...

Are you really this stupid? Construction cost is not the reason of unaffordable housing.

Have you checked the prices lately?

DLF declared a few months back that their new seller agreement would have a clause that if cost of construction goes up in the period the house is being constructed then buyer will have to bear that.

Construction + labour cost is a significant component.

GSM said...

I would also stretch it a bit to say that a strong rupee and poor growth in rest of world will lead to cooling off in commodity prices, inflation and hence resulting in drop in the cost of construction which will make housing affordable.


Well, this happened in 2006-07. Did the home prices come down or sky rocket? Stronger rupee and lower inflation will mean lower interest rates which in turn fuels speculation.

Pawan said...

@GSM
Well, this happened in 2006-07. Did the home prices come down or sky rocket? Stronger rupee and lower inflation will mean lower interest rates which in turn fuels speculation.

That was a different period. In 2005-08 period, IT salaries were going up 20-30%. Salaries doubled in those 3 years. And everyone expected the party will continue. Expectations are very different this time.

aam aadmi said...

It's a hypothetical discussion, there will be no increase in outsourcing, outsourcing is going to come down in the long term, companies are looking at avenues to cut down spending everywhere.

And this is real, not a predicted scenario. Barring a few companies most of them are not doing well. The days of 15% hikes every year are over.

Take a look at technologies like voice recognition and speech translation. Microsoft just demonstrated English to Chinese real time speech translation yesterday, it's not hard to imagine that one day a computer will take your calls rather than a person. Goodbye call center jobs.

Anonymous said...

Cost of construction is a pathetic reason given by builders.
considering Mumbai and suburbs around....if a 2 BHK 1000 sqft is being sold in ambernath for 30 lakhs....so it means even if builder is doing social work construction cost will be max 30 lakhs.....a similar flat in powai would cost you 1.5 crores.
so 1.2 crores profit?????? 300% profit. The problem with people who have already bought flats at cheaper rate is that they are living in a virtual reality of they becoming crorepatis......what is the use of owning a 1 cr home in Mumbai when u cannot avoid smelling armpits of others in this crowded city.

Anonymous said...

CALL center jobs already lost to Philipino people, so MSFT translating Chinese to English or English to Chinese will have no impact on India. It is a low paying job. Houses maybe overvalued by 20-30%, but it will not go down much. Average Indian may have made 10k per month 10-15 years ago, and today he makes 5 to 10 times that salary, so you should expect the housing to go up 500 to 1000%. Not much upside potential, but limited downside potential also. IF a house cost 10 lakhs in 2000, it is probably worth 60L to 1 cr today.

polt said...

>IF a house cost 10 lakhs in 2000, it is probably worth 60L to 1 cr today

Wrong. A house worth about 10L in 2000 should be worth about 20L today (assuming 7% inflation).
People earning more will also desire better homes, not the ones built in 2000.

Average home prices increase with increase in income, but what is missing in this statistic is that the type of home is also changing.
Charts like the case-schiller index, herengracht index show that for the same homes, prices track inflation.

Pawan said...

@Polt
Wrong. A house worth about 10L in 2000 should be worth about 20L today (assuming 7% inflation).

This is so wrong. Real GDP growth has averaged 8% in these 10 years. Add to that 7% inflation and the nominal growth rate becomes 15% YOY. That makes it 5-6 times price rise in 12 years. Of course when something rises that fast, some investors/speculators also jump in so instead of 5-6 times, we are seeing 7-8 times number. That will correct either because of about 20% price correction or a 2-3 year time correction.

Btw., have salaries/incomes/business profits only doubled since 2000?

Anonymous said...

People earning more will also desire better homes, not the ones built in 2000.

If you were talking cars or iphones it would make sense.

Housing is about location and appreciation is in land value. So even a total dump in a good location in any Indian city would have gone up since the number of potential bidders are more than that in 2000.

Yes, not everyone in India is a crorepati but there are quite a few. Definitely more than the available housing.

Reality right now is that every luxury project is 20-30% booked before the builder even puts the first ad. in the paper. Then 50-70% booked before the first slab is laid.

With this type of demand don't expect builders to bring down prices as they're covering their costs with only half the inventory sold.

Now if the speculators vanished overnight, then we'd see some instantaneous drops. Barring that it will be business as usual. There is too much easy money to be made by a lot of powerful people...

Anonymous said...

To Anon at 8:40 pm
Dude, why is the price of the house not 100 crore then. Whatever bullshit price the seller may quote, ultimately if the buyer does not have the cash flow to make EMI payments, the passing the hot potato circle jerk is going to end. Your bullshit game DOES need a sucker at the end of it.

polt said...

@Pawan - "Btw., have salaries/incomes/business profits only doubled since 2000

I did not say profits track inflation. Ofcourse they dont. Otherwise countries would never become richer.

I said same home prices track inflation. Same home prices do not track nominal GDP growth. The important word here is 'same'.

BTW, same salaries have tracked inflation (atleast in IT). In 1999, Infy/Wipro/HCL used to pay around 15k/month in Bangalore. (1.8L/yr). Now they pay about 4L/year for freshers. Do the math - its about 7-8% - the same as inflation.
Once again the important word here is 'same'. Yes the number of higher paying jobs has increased. But wages for the 'same' job has tracked inflation.

I am fairly certain we will see the same behaviour in housing over the long term. The number of high end apartments available will increase, but the price of a given house will track inflation (and NOT nominal GDP growth).

polt said...

@Anon - Housing is about location and appreciation is in land value.

Agree, but it cuts both ways. You could be in a city which is the next NY/London or the next Detroit.

In any case, India is a long distance away from being saturated as far as land is concerned. Zoning laws will be relaxed, transportation will improve ..

Read Hoyts 'Hundred years of land values in Chicago'. The speculation in the early years of Chicago is very similar to the ones we are seeing in our cities now. The one difference is that credit is much easier to come by than it was in the 1800s. So the speculation increases.

Pawan said...

@Polt
I am fairly certain we will see the same behaviour in housing over the long term. The number of high end apartments available will increase, but the price of a given house will track inflation (and NOT nominal GDP growth).

I say that is a very simplistic view.
Let us say there is a country of 100 people each earning 100 dollars a year. Next year the GDP goes up 5% so everyone earns 105 dollars (assuming equal distribution and zero inflation).

Would you say home prices go up in such a scenario?

My answer is, it depends what is it that people consider important. Where is it that they want to spend the extra 5 dollars. It may be in buying cars or gold or ipads or houses or expensive wines. Indians are into property right now.

Long term: I agree buying a house is like being the early mobile phone buyer (who paid a lot compared to what we pay today). Over time affordability will increase. And that is what I said in an earlier post. Affordability will improve. Whether it is because of price correction, time correction or salaries going up is to be seen. But a 40-70% correction that people on this board keep dreaming of will never happen. Even if it happened for a short period, there are enough big fish out there who will usurp majority of everything on offer. The `aam aadmi` won't gain anything out of it.

polt said...

@Pawan - "Would you say home prices go up in such a scenario?"

Depends on supply. If supply of homes increase, then prices will fall.

A parallel today can be seen in education. The number of engg and mgmt colleges shot up in response to the growth in jobs. This has kept salaries in check at the entry level. As these new entrants move up, expect something similar at the higher level jobs too.
The absurd salary hikes seen were simply due to a mismatch of demand and supply.
Now the demand has slowed and the effect is seen in wage hikes and in the number of colleges shutting down.

Housing too has an oversupply (at current prices). Credit and expectations are holding up prices, but in due course of time these will reverse. I have no idea of what the percentage fall will be. In our opaque RE market you never know what something is being bought or sold for. But human nature tends to hype the gains and underplay the losses.



Whether it will be in the form a crash or (IMHO) a 'slow melt' remains to be seen.

Pawan said...

@Polt
Housing too has an oversupply (at current prices).

I agree. But what happens if prices fall 20%? Or if prices stay same and 2 years pass where inflation being 8-10%, the effect is same as 20% reduction. And then PC is trying to force interest rates down.

The story of last 10-12 years has been that you buy a hard asset at any time and today you are seeing a higher price because the Indian govt. has been on a ferocious printing spree since then. And this money printing is not going to stop any time soon.

GSM said...

if prices stay same and 2 years pass where inflation being 8-10%, the effect is same as 20% reduction.

It doesn't make it more affordable. Simply bcoz your savings for would have depreciated and secondly you have spend more on your daily expense. And the interest rates will be relatively high when you eventually try to buy a house with loan.

polt said...

@Pawan - "The story of last 10-12 years has been that you buy a hard asset at any time and today you are seeing a higher price because the Indian govt. has been on a ferocious printing spree since then"

Money created by the RBI is a small fraction of the final money supply. So it is certainly possible that the govt can go on creating money but prices keep falling. See Japan (15 years of QE and continuing), USA (5 years of QE and now unlimited QE with no fixed timelines!), UK (5 years of QE).

I am not saying we will have a deflationary economy, just saying that home prices can fall even with money creation.



Anonymous said...

@ Housing is about location and appreciation is in land value.

And as the Vadra expose tells us this "appreciation" in land values is partly to do with inflation, growth etc. but most of it is due to fraud and corruption.

Once this fraud in RE dealings is contained, prices will come down automatically.

Conversely, until this fraud is rampant, there is no hope for any meaningful correction.

skeptic's ghost said...

Prices in remote places around Pune (Pirangut, Uruli Kanchan, etc) have risen as high as 2800 Rs per sq ft.

I don't think now that a flat out fall in prices will ever happen - the House I bought in 2009 (after consulting this blog) is now worth 2+ times and I will be paying the mortgage off in bulk so that I only have 10 lakh due.

I have been advising to buy when prices stabilized (and I keep saying that prices wont fall unless there is an uprising) I wonder how many people still waited.

Anonymous said...

N Sundaresha Subramanian: The pin is ready, bring on the bubble

The most speculative of realty markets in Delhi, Mumbai and to some extent the Southern markets in Andhra and Tamil Nadu are finding themselves in the centre of political storms. According to Parthasarathy, this could eventually lead to a crack. I am only too happy to believe this theory. I have waited for long. And the tell tale signs are all over the country.

In Tamil Nadu, the ruling AIADMK has been cracking down on former DMK legislators and ministers accusing them of landgrabbing. Durai Dayanidhi, son of Union Fertilisers minister MK Azhagiri is on the run for alleged involvement in granite mining in Madurai district.

In Andhra, YS Jaganmohan Reddy is behind bars. Reddy’s interest has spanned media, mining and granite, but he is also said to be a major player in Andhra real estate.

And then comes the big two, Mumbai-Pune belt in Maharashtra and the capital region comprising Delhi, Haryana and Uttar Pradesh.
With the famous sons-in-law facing music in these regions, officials have even started demanding that such middlemen are expunged from the system, my hunch is that there is going to be a significant winding down of positions. DLF, Lavasa troubles are not going to go away in a hurry.

SKG said...

The real question is

WHY BUY? WHEN IT IS UNAFFORDABLE?HOW TO KEEP YOUR MONEY'S VALUE INTACT?

and find alternative ways to deal with it without getting in to the trouble of analyzing what it is and how much time will it take to stabilize?

-SKG

Anonymous said...

@skeptic - "I don't think now that a flat out fall in prices will ever happen"

It never happens. The housing market is not like the stock market where you can lose half your wealth in just a couple of days.

US home prices have fallen 30% over 6 years (2007-2012). On average that is less than 0.5% per month. If prices do fall in India, it will be a similar slow grind. You certainly wont find screaming headlines saying 'CRASH'.

Anonymous said...

http://timesofindia.indiatimes.com/home/environment/pollution/Big-cities-are-gasping-for-fresh-air-air-pollution-worsens-in-metros/articleshow/17212909.cms

3bhk less than 1 cr. forget it. i now seriously wonder how many have the capability to pay even >70lakhs for a home (apt?)

REBear said...

@Anonymous above

http://timesofindia.indiatimes.com/home/environment/pollution/Big-cities-are-gasping-for-fresh-air-air-pollution-worsens-in-metros/articleshow/17212909.cms

You won't believe for the above same reason I have almost made up my mind to relocate to Singapore. Rather than buying a house in India or even renting it is better to rent in Singapore which fortunately openly welcomes talent, has a much clean air and facilities of first world country. It's a costly country in renting, but a lot of it is offsetted by lower tax rates.

Sample this, when a small microprenuer like me can find an arbitrage of better lifestyle for similar price, why wouldn't the rich class or people having money consider the same ? At this price point, Indian real estate prices are totally disconnected with the quality it provides(construction quality, quality of surroundings, lifestyle, etc.). Ultimately it's the real demand for end use that will be the guiding force of price trends, not speculative demand.

Anonymous said...

I plan to sell my pigeon hole while the party is going on and leave.

aam aadmi said...

Companies across Bangalore are going for forced shutdowns, layoffs and hiring freezes. Just got some more info this morning. Sentiment is very bad.

Definitely good for RE.

Krrish Colombo said...

A lot of good information you have provided. Your post will help many people to invest their money in real estate market.
Regards
Buy Property Sri Lanka

aam aadmi said...

http://online.wsj.com/article/SB10001424127887324556304578120420559229386.html

Our very own bank bailout.

Anonymous said...

We might soon have our Minsky moment - http://en.wikipedia.org/wiki/Minsky_moment

"The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money."

aam aadmi said...

What we are experiencing is the mother of all bubbles that we have seen till now, the population involved, the amount of money is just staggering.

The good old economy ain't seen anything like the likes of it till now. I am sure we will have to change the name from Minsky Moment to something else to cover what we are about to see.

GSM said...

Companies across Bangalore are going for forced shutdowns, layoffs and hiring freezes. Just got some more info this morning.

I guess you may be talking about TI announcement on layoffs. I guess you must be working there. I don't think you can generalize however.

aam aadmi said...

@GSM
Yes I heard about TI from friends, but I am not generalizing, at least three other companies I know are having forced shutdowns, friends in two others report a flood of resumes. Of course a handful are doing well like Samsung, Qualcomm etc

aam aadmi said...

http://www.marketwatch.com/story/euro-zone-double-dips-back-into-recession-2012-11-15

Third-quarter euro-zone gross domestic product shrank 0.1% compared to the second quarter, the European Union statistics agency Eurostat said. That’s equal to an annualized contraction of around 0.4%.

I always felt that things would unravel after the elections, seems like I was right.
Meanwhile in Japan there are talks of "unlimited easing" and Uncle Ben is as always ready with his printer.

Anonymous said...

@aam admi - Will Bangalore see a further correction? I think not much. If you look at the Residex indices for Bangalore, prices have been mostly flat for 5 years now. So in real terms they have corrected.

Also in North Bangalore, 80L homes from good builders (Tata/Purvankara etc) are renting for about 30K+ a month. That gives a price/rent ratio of about 250. Its on the higher side and I know its nots perfect as a valuation metric. But atleast it is not outrageous like in NCR/Bombay where it can touch 400.

Anonymous said...

@GSM - The TI layoffs are not indicative of a general malaise in the semicon industry. Its just that others (Qualcomm/Nvidia/Samsung) are growing at TIs expense.

Anonymous said...

One company laying off another company hiring.

HP, Yahoo, Microsoft going down, IBM, Google, Apple going up!

When there are mass layoffs across the board, then we can talk.

Till then, the party goes on. A few faces change here and there, but the liquor is flowing and music is thumping.

Mango men can only watch the show from the street...

REBear said...

http://www.thehindubusinessline.com/news/real-estate/realty-sales-not-up-to-expectations-in-diwali-season-finds-survey/article4098726.ece

GSM said...

Also in North Bangalore, 80L homes from good builders (Tata/Purvankara etc) are renting for about 30K+ a month.

So if the builders start demanding 80k per month of rent, is that a screaming buy? The fact is, there is so much of land in North Bangalore leading to airport that even 40L is not worth for these houses

polt said...

>The fact is, there is so much of land in North Bangalore leading to airport that even 40L is not worth for these houses

True. But it is true of most cities in India. We are nowhere near being land constrained like say Singapore or HK. But our land price bubble keeps growing ! From all accounts it has been growing for 30 years now.
Hardly anyone thinks about the cash-flows/earnings. They buy land simply in the expectation of capital gains.

I guess cultural forces are at play too. Its far more sexier to say 'I own a x sqft sized plot of land at ABC location' than to say 'I own x shares of dividend paying stock ABC'. Even if the latter may be a far more profitable and liquid position to be in.

Pawan said...

So if the builders start demanding 80k per month of rent, is that a screaming buy?

Exactly my point. Rents are going up 10% every year and 200 times is no gospel truth. May be we are missing the bigger picture.

Btw, there was a news yesterday that PSU banks are looking to hire 65,000 new people. Bank hiring means things are turning for the better.

aam aadmi said...

Bank hiring means things are turning for the better

PSU Banks are the private kitty of the Govt in power, AFAIK NPA's are rising and deposits are falling, not the best time to hire a lot of people.
I am sure this hiring is in light of 2014 elections.

Pawan said...

@aam aadmi
deposits are falling

No Sir. The deposit growth rate is falling not the deposits. This year in the first six months, banks have got deposits of about 50 billion USD. For the full year, it could be extrapolated to 100 billion USD.

http://timesofindia.indiatimes.com/business/india-business/Credit-growth-slows-down-to-17/articleshow/12617690.cms

aam aadmi said...

This was my reference

http://articles.economictimes.indiatimes.com/2012-10-03/news/34239121_1_deposit-rates-deposits-growth-rbi-data

Deposits mobilised by banks dropped Rs 30,152 crore while loans went up Rs 16,795 crore in the period under review. On a year-on-year basis, deposit grew 13.66% compared to RBI's projection of 16%

Yes it's a fall in growth rate to be exact, but it indicates overall contraction nonetheless given wage inflation.

Anonymous said...

Meanwhile internationally -

http://economictimes.indiatimes.com/news/international-business/banks-seen-shrinking-for-good-as-lay-offs-near-160000/articleshow/17240136.cms

GSM said...

Exactly my point. Rents are going up 10% every year and 200 times is no gospel truth. May be we are missing the bigger picture.

Do you imply that salaries will raise too? If not it eats into the discretionary spending. What about the India's consumption story then?. Does that not result in downward spiral?

Anonymous said...

Leave it to Indian Businessman to exploit all possible avenues and make things so complex that no-one can even understand inner workings anymore...

30,000cr diamond loans diverted to real estate


Calling the export figures as false and manipulative, Kothari said, "The export of $28 billion worth of polished diamonds and the import of $20 billion worth of polished diamonds in 2010-11 was the classic example of round-tripping. India is a diamond exporter and there is no need for importing polished diamonds. This shows how the 'black sheep' have played the trick to misuse the bank finance."

--
It seems large amount of Investment is in RE. If one sector has invested so much, what about other sectors. You include politicians, mafia etc... I am sure the money tied up in RE is enormous. No wonder everyone is denying bubble....

Pawan said...

@GSM
Do you imply that salaries will raise too? If not it eats into the discretionary spending.

I predicted this 2 years back on this very blog but that has not resulted in the slowdown in RE. Why? May be the following article has the answer.

http://www.firstpost.com/economy/forget-cag-mr-govt-please-tell-us-where-rs-19-lakh-crore-went-526046.html

The article implies that all the cheap stimulus money provided by Indian govt is going into RE speculation. If this much money is available to politicians, businessmen and top officials for RE speculation then it does not matter whether middle class salaries go up or not. May be this is the missing piece in the puzzle.

aam aadmi said...

@Pawan
It's hardly a puzzle, cheap money is going into speculation everywhere, that's the number one vocation for wall street. If Bernanke raises interest rates by 3% tomorrow, the markets will keel over the next day.

If Subbarao were to set a real positive interest rate, which would amount to something like a 12% central bank interest rate the RE market would go under promptly. But the longer they delay it the worse it becomes.

As far as middle class not mattering, that's not true, you need suckers at the end of the stick to hold this thing aloft. Otherwise it becomes like a perpetual machine concept.

Pawan said...

@aam aadmi
It's hardly a puzzle, cheap money is going into speculation everywhere

The puzzle is its effect. In USA or Japan, cheap money did not prevent deflation. In India, cheap money is blowing bubbles. May be we will get to deflation in due time. Not so far though.

Anonymous said...

@Pawan - "The puzzle is its effect. In USA or Japan, cheap money did not prevent deflation. In India, cheap money is blowing bubbles. May be we will get to deflation in due time. Not so far though."

Agreed. But its also possible to have asset deflation but essential consumer goods inflation. Especially assets that need credit to be bought.

To some extent this is being seen in the US. Gas/Food/rents have risen but home prices have fallen. (Though the last qtr has seen some home price gains).

Anonymous said...

Pawan/AamAadmi/Polt

I will tell you the sequence.

1. Chidambaram/congress aim is to keep the bubble atleast upto 2014 election. chidambaram is not an idiot to not understand the bubble and the implications.

2. RBI will be pressurized to cut rates and it will do it eventually which may try to keep the bubble for few more months.

3. But the balance of paymments and dollar Ruppee equation will worsen quarter on quarter.

4. bank profits will worsen.

5. Jobs growth already showing deceleration which will be much worsen.

6. It is matter of time. Is it possible to short indian stocks to medium to long term by some way?

Anonymous said...

Real estate sentiments sluggish this Diwali: ASSOCHAM survey
http://articles.timesofindia.indiatimes.com/2012-11-15/india-business/35134410_1_assocham-survey-real-estate-projects-industry-status

Anonymous said...

No wonder everyone is denying bubble....

When the elite plow into a sector it's called "investing"

When middle class and marginal borrowers (subprime) plow into a sector it's called a "bubble"

Nothing to see here folks...

Anonymous said...

a 12% central bank interest rate will take down much more than RE sector.

entire economy including many genuine businesses that rely on bank loans will go belly up in this type of environment.

we need a surgical cut to be made to take out the cancer of corruption in specific sectors of the economy. solution cannot be to commit suicide...

Anonymous said...

http://www.ndtv.com/article/people/ponty-chadha-from-snack-seller-to-liquor-tycoon-293642

Incredible India! Media confusing corruption and crony capitalism with a rags-to-riches by the sweat of one's brow tale...

India is littered with thousands of such respectable businesses who are plowing their ill gotten gains into the real estate sector.

Anonymous said...

Another article says in times today about the delay in construction blah blah...

problem is we are yet to see the first set of panic sellers....yes everyone is denying the bubble...the reason is they are able to withstand the pressure..either they have enough money to pay the interest cost for the stuck investment or they have real money to service....

I think banks are taking the hit here and just restructuring the loans quarter of quarter expecting a miracle

Mangoman said...

I suspect a conspiracy here. When the brent crude touches 110 dollars per barrel and the Rupee is trading at 55 Rupees per dollars, do our OMC's really having a leeway to reduce petrol price? Common sense says No. Indian Government business sense says yes....

The plan to show the inflation at much lesser rate than last month to extract a rate cut from RBI. I will not be surprised to see the inflation rate of less than 6% even less than 5% next month which will be used to pressurize Subbarao.

Pawan said...

Some cheer for the bears.
This friday, I went to a Costa Coffee outlet in Delhi that I frequent and was chatting up with the person on the counter. He told me that they are shutting down that store on 25th because the rent is too high. He declined to tell the actual numbers but said that they are still profitable. He also mentioned that they will look for a cheaper location in the same market.

property said...

thanks for sharing informative article .....

Real Estate

Anonymous said...

http://economictimes.indiatimes.com/news/nri/visa-and-immigration/spain-to-offer-residency-permits-if-foreigners-buy-houses-worth-200000/articleshow/17281748.cms


REBear said...

@Anonymous at 8:31 AM
http://economictimes.indiatimes.com/news/nri/visa-and-immigration/spain-to-offer-residency-permits-if-foreigners-buy-houses-worth-200000/articleshow/17281748.cms


And THIS is the real arbitrage opportunity for people who can move anywhere they want (applies to me at least) without losing income. On the weekend I was on a search for Apartments on rent in Sohna Road, Gurgaon. Societies were nice looking from out but construction quality was horrible - I will post pictures on picasa sometime showing the cracks on walls, seepage, and peeling paint on several walls outside the building. The asking rent is 35k including maintenance, and purchase price staggering 1.75 cr for 1860 sq ft super built area. Guess the carpet area, it was not even 1250 sq ft. Oh and by the way I being an indie app developer is not eligible since landlord requires company lease for his protection !!!

If Spain is giving residency for such a low amount why care about real estate prices in India ?

Pawan said...

@REBear
The asking rent is 35k including maintenance, and purchase price staggering 1.75 cr for 1860 sq ft super built area.

Park View 2?

REBear said...

@Pawan

Yes, I guess the same one by Bestech.

Meanwhile, serious political movement in United States
where rich states are demanding separation from United States:

http://english.pravda.ru/world/americas/19-11-2012/122846-usa_separatism-0/

Anonymous said...

Just to give some reality perspective to everyone in India. Here is a listing of House in Florida (just 5 minutes from Disney world). The asking price is just $35,000 translating into just Rs. 17 lakh. You get far better standard of living. It is a single family home, not a flat in building. For this much you get 0.23 acre of land. One can afford such home, even if you earn only $20K per year, which one can easily do with minimum wage, flipping burgers in McDs.

803 Hazel Grove CT, Florida

Looking at this, the Prices in India seem un-real to me.

aam aadmi said...

@REBear
Yes it's a good opportunity. Although you are going to live like an outsider for a long time, it will still be better than living here in the coming decades.

Learn the local culture and live like a local, shed the cultural baggage one carries from here and one should be all right.

Rustomjee said...

Anon@1:10PM - Hazel Grove, FL

Read this story in last week's Economist, to get an idea about why flipping burgers is not going to take care of you in America:

The poor in America

There is a very good reason why real estate prices have crashed in places like that, and it is going to stay that way for at least a decade. Maintaining the current social security net in the US is going to be a major challenge as manufacturing jobs flee.

India is headed the same way. To elect that idiot Rahul, Congress is going to announce some "Bleed India to death" giveaway programs. The entire economy will come tumbling down 6-9 months after that. In the US, about 50% of the population pays taxes, while it is close to 4% in India. At this
rate, bad times are not very far away.

Anonymous said...

I have a question for nri's who compare US prices vs India. Do you even compare your salaries for a similar position in India vs US? How many of you work in US just take advantage of the currency arbitrage?. How many of you would come back to India when you get fired in your job?

aam aadmi said...

@Anon above
That's the whole point isn't it. US salaries are four-five times that of India yet their houses are cheaper. Doesn't that say something ?

On another note here's another story

http://online.wsj.com/article/SB10001424127887324352004578130303086969998.html

India Central Bank Bans Banks From Giving Loans to Buy Gold

What other reason does one need to buy gold ? It has now been ratified at the very top.

Anonymous said...

@aam aadmi

When people do not complain about the 5x salary arbitrage, why should they complain about house prices?

aam aadmi said...

I am not sure 'complaining' is the right word. More like pointing out the stupidity of it all.

Anyways having a 5x salary in US makes sense which is why people don't complain, the other fact does not make sense which is why people 'complain'.

Anonymous said...

change "makes sense" to "benefit" in the above post

Anonymous said...

sad to see people on this board glorifying politicians and hence justifying price rise or denying price cuts in the future

Well as you can see these people are there only to take your money before you realise its too late.

Too Late = Free fall TOTALLY

These scammers will entice you, inflate the prices as much as they can (they are doing in from 2003) and when prices dip even 5% they will turn your back on you and leave u with nothing.

When time waits for no one you think these corrupt humans can change the basic laws of demand and supply? Time heals all scars.

Those who have been waiting to buy will buy once again once the freefall begins. trust me

Anonymous said...

no free fall or crash, keep dreaming... I would say wake up RE WILL NEVER EVER dip in Mumbai or any other metro cities. Rents have been steadily increasing and many are ready to pay up minimum Rs. 30,000 per month on rent. I say increase this to Rs. 50,000 per month and many will still rent and even more will buy.

Most of the people in India are flush with money. Rs 10 lakhs (~ $2000) is nothing in India, many just blow up this money on fire crakers during marriages and other joyful events & festivals.

Seen many spending atleast Rs. 50 lakhs (~ USD 10,000) just on home interior furnishing.

Ha! still dreaming of free fall.... WAKE UP.

Anonymous said...

anon@3:14 PM

Your math is skewed. 50 Lacs is $ 100,000.00

If Indians are blowing that amount in fire crackers they are crackers..and deserve what will happen to them. If they really blow $100K on arbitrary things then we are in a mega bubble..of unbelievable proportions. And I am looking forward to the bubble burst.

Mangoman said...

It turns out Mr.Subbarao and others in RBI are not that clever as we think.

Yesterday they sent a circular to banks not to lend to gold and the reason given was is that it seems that gold is used for speculative purposes. One could not control laughing hearing this comedy statement.

If RBI is really interested in controlling speculative money, it should bark elsewhere. Yes. you got it right. Real estate is the speculation which causes our economy to nosedive. RBI did not have the courage to take on the mighty.

RBI is probably worrying about the effect it would have on state run banks and others. But the truth is truth. We have to stand by that.

Mr.Subbarao , the open norm in any real estate investment is 30% of black money and further due to our 'so called monetary loose tightening; already real interest rates are in negative. Instead of globally controlled gold rates why not you try to control the speculation in real estate? My mango mind says that is easy and that is really needed.

Anonymous said...

TOP 10% pays 60% of the taxes in the US. 47 million on the food stamps. These people, if they want to, can get work at mcd and flip burgers for 10 dollars/ hour, but it is better for them not to work. Yes, these 47 million , 90% of them voted for Obama. 1000 US citizens going on disability per day, ie the hard working Americans have to pay for them. Majority of these people have no problem, but they find a way to get into the system. A person making 60k per year makes less than the 47 million food stampers, who stay home. Govt also provides them Rent vouchers, child care credit and even Phone minutes. you make 60k, you pay your taxes, pay your mtg, you have nothing left, but the 47 million food stampers get a tax refund at the end of the year. :) Guess who earns the most money in the US??? the Indians. Hard working Desis's will be paying more taxes at the end.

Anonymous said...

That's the whole point isn't it. US salaries are four-five times that of India yet their houses are cheaper. Doesn't that say something ?

Yes, what it says is that US salaries are going to come down and Indian salaries will continue to rise up.

Globalization means that human resources are just like any other commodity. especially in white collar fields like IT and finance. Soon to be applied to medicine, teaching, lawyers et al

Anonymous said...

Just to give some reality perspective to everyone in India. Here is a listing of House in Florida (just 5 minutes from Disney world). The asking price is just $35,000 translating into just Rs. 17 lakh.

Clearly this poster has no idea of the meth epidemic sweeping through Florida.

If meth is being cooked in your neighbourhood or worse in your house, the value of that property is negative. i.e. you have to pay someone to come and demolish / detoxify the area.

Or the annual hurricane season which has left many neighbouhoods uninsurable. i.e No insurance company will underwrite a policy for your home.

There are just a few biggies. There are hundreds of other gotchas which probably justify the market price for this house...

Just like the famous 10000 dollar houses in Detroit in neighbourhoods where no Indian no matter how brave would dare venture.

Pawan said...

@Anon
Guess who earns the most money in the US??? the Indians. Hard working Desis's will be paying more taxes at the end.

Everyone loves hard working donkeys because they share your burden and ask for little in return. Middle class is an exploited lot everywhere - first world USA or third world India. And that is what makes me despondent. When USA is so corrupt, what hope do we have here?

aam aadmi said...

Yes, what it says is that US salaries are going to come down and Indian salaries will continue to rise up

I agree about the first part, not the second. Wage arbitrage can't go into infinity, it's not a physics problem where water levels should equalize. There are issues like overall competitiveness and productivity which we sorely lack. China is already ahead of India in terms of real wages but still attracts more investments compared to India. Why ? because they are more competitive as well as productive.

wage = cost + competitiveness + productivity

aam aadmi said...

There's also this big issue of who is going to buy all the shit that third world nations produce. Last I checked Europe and US are falling off the cliff.

Oil consumption which is a good economic indicator has been falling for the last four years in US and Europe and there are no signs of that stopping. The only thing that is propping up this whole mess is the flow of cheap money from Bernanke and Draghi. And if you think that this printing can continue into eternity I have some land in Greenland to sell to you. It's under two miles of ice right now but should be ready for use by 2075.

rajni sharma said...

Hey this is very nice post...
Residential projects in lucknow

rajni sharma said...

I appreciate you sharing this blog.Thanks
Real estate companies in Lucknow

rajni sharma said...

I appreciate you sharing this blog.Thanks for sharing
Real estate lucknow

rajni sharma said...

This is one of your best blog....
Residential Property in kolkata

rajni sharma said...

This is really very nice and helpful
Properties in Kolkata

Anonymous said...

PropTiger spamming this blog? Sales must be sluggish this month.

Anonymous said...

PropTiger spamming this blog? Sales must be sluggish this month.

Anonymous said...

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/chidambaram-asks-banks-to-fund-residential-projects-to-revive-faltering-growth/articleshow/17314985.cms

hey bhagwaan

Mayank Patel said...

Thanks for the marvelous posting! I definitely really liked every bit of it and i also have you book marked to check out new things in your site.

Nice blog and attractive information. I like your blog and your work.

Flats In Ahmedabad

aam aadmi said...

LOL. Clearly the spammers can't read the title of this blog.

Anonymous said...

Indian Dream is the the dream of being a part of land-owning class.

Anonymous said...

Just like Real estate, Gold too is an extremely desirable asset in India.
By the same yardstick, Gold should be 4-5 times international pricing in India as well.
This does not happen because Gold can move between borders while land can not.
However people can.
why, then is the price differential still crazy high for comparable real estate. And this does not take the standard of living into account.
Just thinking aloud.

Real Estate in Noida said...

Nice post.. Thank you for post....Residential Property in Noida or Real Estate in Chandigarh.

Rustomjee said...

This does not happen because Gold can move between borders while land can not. However people can. why, then is the price differential still crazy high for comparable real estate. And this does not take the standard of living into account.

Very good point. In developing countries, this is where infrastructure comes in. As roads and highways are built, cities expand, opening up new tracts of land for construction. As a result, the real estate of congested, bug infested "downtowns" becomes less desirable.

The builder-politician mafia would like infrastructural development to stay confined within city limits. But business investment likes to see better infrastructure outside city limits.

This is where the government is in a catch-22 situation, between holding urban real estate prices and enabling rural growth. Eventually, any government run by the right people will go for infrastructure versus holding real estate prices.

Somehow, I don't see Congress doing it any time soon. But if Narendra Modi becomes PM, it might happen, since he is pro-development.

Anonymous said...

Chidambaram comes a full circle. August he asked bankers to put pressure on banks and now he is putting pressure on banks on behalf of developers.

Anonymous said...

There's also this big issue of who is going to buy all the shit that third world nations produce. Last I checked Europe and US are falling off the cliff.

Have you seen the consumption of Indians? And I'm not talking about NRIs, I'm talking about your average middle class / upper middle class white collar working family.

Same is true of Chinese. The new generation is living it up instead of waiting for a better life after death! :-)

Anonymous said...

why, then is the price differential still crazy high for comparable real estate

Easy, if you buy gold on the black market the price will be higher. If it became impossible to buy gold legally in a transparent manner, gold prices would shoot up as well.

RE is always transacted in the black market with middlemen taking a cut all along the way. Archaic laws, bureacracy and a collapsed legal system ensure a fertile breeding ground for all types of illegalities.

In the end, the retail buyer has to bear the cost.

Anonymous said...

Hard working Desis's will be paying more taxes at the end.

That's the least of the worries. When the going is good even a lion and deer can share the same water hole, but when times get tough.

Extremism is on the rise in Europe. It was already prominent in US but is gaining strength. Social unrest is bound to breakout and minorities are going to be easy targets everywhere...

aam aadmi said...

Same is true of Chinese. The new generation is living it up instead of waiting for a better life after death

What are you talking about? Asian consumption is barely a fraction of westerners. In the short term there is no one who can prop up Asia's export oriented economies.

India with all it's 110 cr population consumes 3.5mbpd of oil, US with 30 cr consumes 18mbpd of oil. Even China consumes only 8-9 mbpd. That's not all, what kind of consumption do you expect with a 30-40% savings rate.

Anonymous said...

http://economictimes.indiatimes.com/markets/real-estate/news/housing-prices-up-in-9-cities-down-in-11-places-national-housing-bank/articleshow/17339002.cms

Bangalore down 5%. What happened? Weren't IT salaries supposed to ensure perennially rising prices?

""Overall, there is a price correction. Even in nine cities where prices have gone up, there will be net decline if we factor in the rise in input cost and inflation," NHB Chairman and Managing Director R V Verma told PTI. "

Anonymous said...

In the previous quarter, only 3 cities showed a decline in the Residex survey.
This time it is 11 . Is the correction spreading?

Diwali was supposed to bring cheers to the RE community. Guess that was not the case.

2013 will be interesting.

GSM said...

What are you talking about? Asian consumption is barely a fraction of westerners. In the short term there is no one who can prop up Asia's export oriented economies.

Well, if the consumption story of the west does not continue due to peak credit, Asian Central banks will have no incentive to collect dollars or Euros to keep their currency low. Instead they may appreciate the currency to lead a consumption boom with the vast savings. I guess that can happen if the Govt provides social security and medical insurance so people don't have to worry about their future.

Pawan said...

@GSM
Asian Central banks will have no incentive to collect dollars or Euros to keep their currency low. Instead they may appreciate the currency to lead a consumption boom with the vast savings.

Excellent point GSM.
A strong currency will control inflation, make food and non-food commodities including gold and oil cheaper. That can bring the next boom in India.

Pawan said...

""Overall, there is a price correction. Even in nine cities where prices have gone up, there will be net decline if we factor in the rise in input cost and inflation," NHB Chairman and Managing Director R V Verma told PTI. "

Good news. If only GOI had allowed the rogue builders to go bust in 2007-2008, RE industry would have been much better off. Anyways, they can delay it but not avoid it. The industry will get more and more competitive just like telecom and auto industries have become in the last 20 years.

Anonymous said...

http://www.nytimes.com/2012/11/24/business/global/wal-marts-india-venture-suspends-executives-as-part-of-bribery-inquiry.html?_r=0

Quote: "In some Indian states, retail chains have to secure 50 to 60 regulatory approvals before they can open a store, a process that can take months and provides numerous opportunities for bribery."


Now we know the real reason why the government hastily approved FDI in retail.

No hope for a country which is corrupt to the core.

Anonymous said...

@"Asian consumption is barely a fraction of westerners. In the short term blah blah blah"

I suppose you would make millions advising all the Western brands that are making a beeline for China and India.

This just from today's news:

http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/most-global-luxury-ceos-now-look-to-invest-in-india-after-government-reforms-study/articleshow/17330199.cms

http://europe.chinadaily.com.cn/epaper/2012-11/23/content_15952551.htm

aam aadmi said...

I suppose you would make millions advising all the Western brands that are making a beeline for China and India.

I am sorry if you don't like facts, but I can't avoid them.

http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/most-global-luxury-ceos-now-look-to-invest-in-india-after-government-reforms-study/articleshow/17330199.cms

You are throwing binary logic at me. It's not 1970's India, so it has a lot of new consumers including a rich creamy layer which buys a lot of luxury items but our consumption levels are nowhere near the western world. If every Indian were to consume like an American we'd need another four-five earths, consume like a European another 2-3 earths.

aam aadmi said...

To put a counter to your argument in one sentence....

Gucci does not run the world economy, wallmart and the likes of wallmart do.

Anonymous said...

Haha, apparently some Indians do make so much money that they need creative ways to burn it...

Trump is old news, Maria Sharapova and Schumy are entering Indian RE...

http://www.tennisworldusa.org/Maria-Sharapova-ties-up-with-London-developer-for-India-real-estate-project-articolo7081.html

REBear said...

Ok here is a shocking truth on the methods of money creation by bulls. From a first hand acquaintance, they are taking loans, exhausted all savings to buy real estate in Delhi/NCR. The theory is that if you have to plan for a daughter's wedding or child's overseas education that is 5 years from now, simply take a loan now, buy land and sell it after 5 years and the profits would be enough to finance it - No need to do anything !!!!

Anonymous said...

"The theory is that if you have to plan for a daughter's wedding or child's overseas education that is 5 years from now, simply take a loan now, buy land and sell it after 5 years and the profits would be enough to finance it - No need to do anything !!!!"

And exactly what is wrong with this theory? If you look at history, this is a theory that has brought forth great dividends since the time of independence.

REBear said...

@Anonymous at 10:16 AM

And exactly what is wrong with this theory? If you look at history, this is a theory that has brought forth great dividends since the time of independence.

Alas I wish there was an easy and foolproof way of making money without doing "anything" - there is no free lunch anywhere in the world.

The problem with the approach of buying and holding real estate is that the profits remain notional, almost always, and an average joe always follows the hold approach with no clear exit strategy. If you don't exit at the right time, you become the loser. Such losers have been seen in great numbers when housing bubbles in US, Japanese, Spain,... crashed. Only a matter of time, it will happen in India too, all economic indicators are premonitions of impending disaster.

Anonymous said...

^^^ what other options do you have?

you can park your money in the casino i.e. dalal street

speculate in gold and worry about storage, theft, international fluctuations etc.?

park it in a bank who will lend it to your neighbour to speculate in whatever he fancies!

atleast when you own RE it is local and tangible asset. And built up housing has utility value and confers societal status (i.e. landlord / property owner)

Anonymous said...

To Anon at 12:18 pm
I agree its basically down to choose your poison. While that is true, do you have really leverage up beyond your means and subject the entire family to hardships when you can no longer pay your EMI. If it is bought outright, perhaps RE confers some value but the fallacy of leveraging up to do the same as REBear points out, only ends in tears for the vast majority.

Anonymous said...

Sometime I really get miffed with comments like NRI investing etc etc. Let me tell you that NRI’s are also just like ordinary earning people and that also NRI in HNI category is very minuscule. Large part of NRIs are labourers and maid etc who cant invest in cities atleast.

I keep checking the price now a days regularly and I was almost fell from a chair when I came to know that 300sq foot apartment in Malad west sold for 65 lakhs. WTF, now this is I call height of OPTIMISM. I am sure the person who is buying one room kitchen apartment, is not a rich person with salary of 20 to 30 lakhs. I will be eager to the price of this 300 sq foot apartment after six month or one year and to check that who is right? This buyer or blog reader who are so hopeful that market will crash sooner than later.

The whole real estate market is pumped beyond the control of real buyers and sellers. The change will only come when we change our self and choose right leaders to rule India. Check the history yourself, whenever Italian rule has come, stock market, real estate, gold etc because our leaders take the money out of the system and re circulate in the black market.

My ultimate target will be to see One room kitchen with tag price of Rs 10,000,000 aka One Crore 

davelindahl said...

Hi,good post.i am satisfied.it will be very useful to us.we have news about real estate
investing.visit:dave lindahl

REBear said...

@Anonymous at 11:47 PM

My ultimate target will be to see One room kitchen with tag price of Rs 10,000,000 aka One Crore

If Mumbai Real Estate is so hot, then why the super prime real estate in Nariman Point not finding buyers ?

http://www.rediff.com/business/report/slowdown-affects-air-indias-plan-to-lease-its-iconic-tower/20121126.htm

It's not madam Sonia Mano or Mr Vadra or K.P. Singh for that matter who can control the real estate market - the real market forces are way too strong than them. As of today, optimism prevails in the minds of market players, most of whom are none other than average Joe or Tom, Dick & Harry. The bubble will burst when the true picture will come in front of them. Italian lady or Congress party leaders will not have much control then - have they been able to save the INR despite all hasty reforms ?

Anonymous said...

@Anon - " Let me tell you that NRI’s are also just like ordinary earning people and that also NRI in HNI category is very minuscule. Large part of NRIs are labourers and maid etc who cant invest in cities atleast."

Well said. The bulls here seem to think that the NRIs are bursting to the seams with cash, when that is clearly not the case.

See http://en.wikipedia.org/wiki/Indian_American . The average income of indian americans is about $88K. After taxes, that is not a lot in the US. One can live decent life, but not enough to blow up on 1cr homes in India.
My guess would be that NRIs have a similar income profile.

Anonymous said...

http://trak.in/tags/business/2007/06/22/what-is-the-average-earnings-of-a-non-resident-indian/

Anonymous said...

To the Anon above.

The link you provided is old. There have been several rounds of tax cuts since then & we ( NRIs in US) do not pay anywhere close to 30%.
Of course, if you include SS & Medicare ( and retirement vehicles like 401K etc) it gets worse.
Thanks

Tarun Yenna

Anonymous said...

@My ultimate target will be to see One room kitchen with tag price of Rs 10,000,000 aka One Crore

That day may be closer than you think:

http://www.deccanherald.com/content/294340/indias-uphill-task-against-black.html

Anonymous said...

"There is a cost of pushing the file. But what is the alternative?" said Lalit Kumar Jain, chairman of the Confederation of Real Estate Developers in India (CREDAI).


WOW! Just amazed at the blatant acceptance of the corruption.

If this quote is indeed accurate, why isn't the CBI taking this as prima facie evidence of fraud and start investigating?

After all, this is no aam aadmi making these allegations.

Anonymous said...

@Anon - "There have been several rounds of tax cuts since then & we ( NRIs in US) do not pay anywhere close to 30%. "

That wont last. The states and the federal government need cash and it will come through tax hikes and lower spending. 'Fiscal cliff'.

aam aadmi said...

Yes taxes in US are set to go up. In fact it will be so everywhere, you simply cannot escape it, even tax havens like Singapore will be hounded by the likes of IRS. It's looking more and more like the 1920's and 30's.

Anonymous said...

Air India building may be a good location, but if they ask for 50% black, I am sure offers will start pouring :)

Anonymous said...

Yes taxes in US are set to go up. In fact it will be so everywhere, you simply cannot escape it, even tax havens like Singapore will be hounded by the likes of IRS. It's looking more and more like the 1920's and 30's.

Highly doubt it. The elite are in absolute control. The middle class will be the victims once again. Tere will be token amount of tax increase (which will be offset by equal amount of loopholes) The budget will be balanced on the backs of the middle class by cutting/degrading services.

All the hoopla about increase taxes on rich is just pulling wool over the eyes of the sheeple. In reality, the rich pay ridiculously low tax. All rich folks I know take very low salaries and divert everything into charities and trusts which are indirectly controlled by them or their close family. The rich also own many loss making (on paper) small businesses which are used to acquire assets like cars and real estate.

It's like mosquitoes running a blood bank and calling themselves entrepreuners and charity workers! You suck the money from the people then pretend to do great work by "donating" it when in reality you're actually using it as a shell to reduce your tax bill.

And it's not just individuals. The biggest corporations in the World, Apple, Google, GE etc. pay tax rates of less than 10% which is nearly the same tax rate as the poorest wage earner in the US would pay!

Unless Obama grows a pair and cleans up all these loopholes and institutes a fair tax on ALL income, it's going to be another gimmick which will solve nothing. But then again, he and his buddies in congress and senate probably use some of these same loopholes being the multi-millionaires that they all are...

Anonymous said...

In this banana republic, are you a have or a have-not?

http://www.thehindubusinessline.com/features/wl/world-of-luxury/article4136981.ece

India on the whole is seeing a surge in the luxury market and it is only bound to grow.

Where is this wealth coming from you say?

http://www.rediff.com/news/report/now-allegations-of-a-rs-4-lakh-crore-scam/20121127.htm

It is the tragic story of Odisha that people in the villages are quarrelling for a small pencil, they are fighting for getting homes under the Indira Awas Yojana, but they don't know that their minerals worth crores of rupees are being looted.

They are busy quarreling for their BPL (Below Poverty Line) cards! Our people don't know that mountains around them are being sold out for pennies to corporate houses.


Now contrast that to those in the cities struggling to get basic amenities when builders and politicians are raping them by diverting public lands and stealing revenue (tax avoidance) from under their noses.

A pre-condition of democracy is an educated, informed and engaged electorate and a moral society. Sadly, we have neither.

Anonymous said...

Indians have a lot of money and they are willing to spend. If parents can spend 17 lakhs for KG seat why cant they afford 1 crore houses. The bubble is not going to burst anytime soon
http://timesofindia.indiatimes.com/city/chennai/Rs-17L-for-LKG-seat-in-Tamil-Nadu-parents-vie-to-pay/articleshow/17395411.cms

Anonymous said...

^^^ Problem with such statements is that people will counter that how many such folks are there?

What they fail to realize is that in a billion+ country even 10% becomes a significant number and can crowd out everyone else.

There are plenty of Indians making easy money. You don't have to be a doctor or engineer to be a crorepati. I know taxidrivers, panwallas and vada pav sellers who have built empires (employing illegal means ofcourse - but who amongst us can claim the moral high ground here?)

India has been a hustlers paradise for the last 15-20 years. If you have a purely opportunist mindset and zero morals you can become wealthy in no time...

Anonymous said...

What they fail to realize is that in a billion+ country even 10% becomes a significant number and can crowd out everyone else

My point exactly. All it takes is a small percentage of 1 billion people to keep the bubble going. There is never a shortage of buyers. This is why the bubble in India will not burst

aam aadmi said...

All it takes is a small percentage of 1 billion people to keep the bubble going

So we can all become rich washing each others clothes ? Your logic is akin to a perpetual machine concept. It doesn't work out, never has. It violates the laws of thermodynamics.

Black money feeds off the real economy...the White money...which in turn feeds off the natural resources (biological and non-biological) of this planet.

All this gobbledygook about information and black money driving the economy will become apparent when we hit the limits in terms of debt and natural resources.

You think you are rich because you own a 1 cr apartment. No sir you think you are rich because that's the 'presumed' market value of your fancy flat. If no one is willing to pay that amount it ain't worth more than a 1 room house.

You think you are rich because you have a lot of money in the bank. You only own bits and bytes on a server which can be devalued over the course of time. As many people are discovering to their apparent bemusement.

USDINR said...

All it takes is a small percentage of 1 billion people to keep the bubble going.

So, we are safe because we breed like rabbits? You may be right, Indians might be able to fuck their way out of all economic problems. Toss those condoms out the window and you are man!

Getafix said...

For a country where most have pledged their balls to their rulers for the glitter of make believe prosperity, we do have a surprisingly large population.
Foreign "hand", eh???

Anonymous said...

Quantity seldom implies quality...

Pawan said...

http://www.moneycontrol.com/news/economy/home-prices-may-soften-as-rbi-acts-toughrealty-npas_788328.html#toptag

aam aadmi said...

@Pawan
Yeah I read that, but as usual Chidu will oppose this move. Hope RBI prevails. Can't wait to see all these builders defaulting.

davelindahl said...

More news about real estate investing.
visit:dave lindahl

Anonymous said...

@Pawan and aam aadmi.

It is not builders, it is local junta that needs to be regulated. everyone likes and deals in black money, they like it because it doesn't tax any party!! Builders have got their back covered by the buyers who happily pour black money when demanded. Hence RBI action will do no impact for builders.

Know where small fishes breed and you will know where big fishes will be lurking.

Anonymous said...

You may be right, Indians might be able to fuck their way out of all economic problems.

In the short term it will lead to good growth. Longer term, this will lead to major social unstability.

This is the same as the baby boom effect of the US but now look at them. They're shit scared of all these folks retiring at 65 and living till 90+ and demanding/voting for all types of free services.

PropTiger.Com said...

The Joint managing director of the Pride Purple Group, Arvind Jain said that in Pune Wakad and Aundh are the two most prominent places that is seen for having huge investment. The most important for gaining huge popularity of this property is that the property in Pune is located to very close to the three major destinations like Pimpri Chinchwad, Hinjewadi, Peth areas.

Regards -
3 Bhk Flats in Pune
4 Bhk Flats in Pune

Conti Travels said...

Conti Travels is a popular bus operator that provides a pleasant ambience for tourists travelling to different locations. It is known for providing the best services to people travelling from Bangalore to Coimbatore and vice-versa. Online Bus Ticket Booking makes it possible for tourists to get their tickets without hassle. It is one of the best methods of Bus Ticket Booking

davelindahl said...

Hi,i would like your post very much.interesting and useful for us.this may be very infomative to all.
we have news about real estate investing.visit:dave lindahl
is one of the real estate investor in united states.He wrotes some books about real estate investing.

Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
Pushpendra Yadav said...
This comment has been removed by a blog administrator.
«Oldest ‹Older   1 – 200 of 217   Newer› Newest»