Almighty

Welcome to 2010, to Chennai and see how the RE market revs up in a one way ticket to the moon. That is also true of Stock market in India though one sharp dip to wipe out scared folks will happen in the early part. So as Nifty creates a new high later the new year you will realise why if you missed buying in 2009 your favourite land or flat in Chennai you never are going to get it and certainly for nothing less than 50% upwards.
Welcome to the bull in RE in 2010. Happy new year.

jay2008

what change it will bring in the minds of consumer to buy the flat or plot apart from just change from 2009 to 2010?.

wiseman

Folks,

Here are some facts which kind of make a wild bull market unlikely, except in the event of very high inflation - in which case you are killed (economically) anyway.

2009 saw the Govt target a record fiscal deficit of 6.8% (and that has already been crossed with likely end-year figures of nearly 8% central and 12% overall being targeted). The approx amount of money held in the banking sector in India was estimated to be around 6.5 lakh crores. Of this the Govt promised to borrow 2/3rds, leaving very little for the Private Sector. Question being asked is, since the Stimulus effect will wear out in the first half of 2010, where will the Govt now borrow the next stimulus (or dose of morphine as Razer would say) for 2010.

One chunk is likely to come from the disinvestment of PSUs. But this is largely a 1-time activity which is likely to bring in around 30k Crores (half of the bailout amount given to farmers last year). This will further suck out liquidity from the system, putting big pressure on the lending sector.

The Dollar is likely to break the previous peak of 92 and head north, which gives a 20%+ gain. This will pull out large amount of foreign hot-money investment back to host countries, further putting pressure on liquidity and the lending sector.

Much of this will lead to significantly higher interest rates, not to mention a sustained high inflation in Food and Commodities. Expect that, if oil remains in the $70-80 range or even a little higher, Govt can no longer afford the subsidies of 2007-08 and petrol and diesel prices will have to be raised for a sustained period. Given the "recovery", oil and NG prices will probably remain in the given range and is even expected to go upto around $90-100 range if demand picks up.

Given that the real recovery on main street (manufacturing and service sector) is likely to be very slow, even with these massive bailouts and stimulus programs and interest rates and inflation remain high, incomes growth will be flat and there will be high pressure on loan or debt servicing amongst common people (in other words, if your hikes and bonuses don't come and you pay more for your groceries and petrol and like to stash away some cash for the rainy day at least now, unlike in 2004-07, there is likely to be much less to service your higher EMIs, right?).

Under these circumstances of doubt, uncertainity and tardy(?) growth, with given significant oversupply in RE and given low demand and given high debt as well as P/E in the RE sector, I continue to expect significant oversupply to remain as well as builders to be under a lot of pressure to dispose off excess inventory rather than build new stuff and add further to inventory.

Then again, there is always the overhanging risk of another big collapse in the mortgage debt and derivatives segment in the US resulting in another multi-trillion bailout (the recent Bill proposed by Barney Frank bakes in a $4 Trillion bailout fund to FED in the event of another bust, which is twice the previous bailout money provided; I guess the US Congress and Administration is expecting another bust!). This will severely weaken global financial markets again and this time the healing and recovery will take longer than the previous one.

Rallies in prices come when demand exceed supply and disposable incomes as well as income growth is high and confidence about these continuing to happen in future is also high. Quite the contrary right now, unless someone can give me data on widespread hikes and bonuses being given, high Corporate Sales and Profit growth (rather than cost cutting based profit growth). In fact, cost cutting has already run much of its course in 2009 and 2010 will see little increase in profits due to this reason.

Under the stated circumstances, wherefrom does one expect a general rally in RE prices, let alone a 50% rally? Come to your own conclusions and act accordingly!!!

Right now, I believe we are seeing another "India Shining" kind of halo being built up around this "recovery" and there is a tremendous amount of pressure to believe in it as people are still scared about what would happen just in case we revisit a double dip (there is no need to be scared, really, one just needs to take simple precautions like spending less and saving more - something that is becoming alien to at least the younger generation compared to the legendary propensity of the Indian to save!). And you know what happens when reality and media images start diverging (there is a resounding crash somewhere down the line).

And btw, while our Stock Market may not plumb new depths below the previous one at 7597, it is likely to remain range-bound within the 10500 to 17500 levels with a propensity towards the lower end. At the most, the current stimulus might push Sensx to the 18500 levels purely due to speculative push (like the 50% rally from 14k to 21k in 8 months in 2007 which no one could use to sell and profit as it was followed by a 21k to 8k fall in the next 8 months!!!). Sell on rallies and wait for significant falls to pick good stocks for decent short term capital gains.

Welcome to the Bull! on this forum in 2010!!!

cheers

REUser

Logically, I agree to your points.
But my intuition / reality says, Chennai RE will start rising by atleast 30 -50% this 2010.

I suppose,tThere is huge backing, like Black Money, Politicians or fear of huge losses to RE companies, as they have purchased land at high prices, to the Developers, because of which they able/have to maintain and increase Rates.

Chennai RE is distinct from the nomral RE Markets, it will be highly dynamic and volatile for the next 2 3 years.

Almighty

I expect not just Chennai RE is move up but entire Indian RE to move up. I like your 30-50% numbers. I personally think that in 2011-13 there will be a time when those who talked about the rise between 2003 and 2008 look like idiots and the rise between 2009 and 2011-13 will make it so much more that the current rise will look like nothing.
One interesting comment I had was will RE go up in my 20% CAGR for land based on past data, mean land price will go up from 1c today to say 50C in another 20 years!
Let me make a counter point to this. The pension of a retiree in 1977 has grown 30 times today in 2010. I am giving actual numbers not an imagination. If salaries move up this way in the next 20 years certainly 1c property (read land) will be 40 to 50c for sure in 2030.
So as I always said investing in USABLE land is certainly the best bet against inflation in India with poor infrastructure growth, huge population, very high USABLE land to population ratio. In summary if you 1L salary today went to 30L in 2030 then my 1c land will certainly hit 50c if not more!
Cheers.

Almighty

I personally dont give a damn to New Year as a concept. It is just another day, another revolution around the sun for the earth. However people evaluate things on a calendar basis and so it does matter what happens to RE in 2010. Did u get it jay?

REUser

There is an imminent Crash of Indian Economy, modeling the US Credit Crash, once the World (Developed Countries) comes out of the Financial Crisis.

Also, India is heading for Civil War due to the uncontrolled/ unmoderate Economic Polices by RBI and Govtin the next 20 - 25 years, by that time India will overtake China in Population, which will add more pressure for food, water etc.

wiseman

If Gold is going to be the killer investment of the next decade (at least for the next 3-5 years or more if Central Bankers decide to continue this mad rush towards currency destruction), then every other asset is likely to fall.
The background to this is due to the peculiar reasons for Gold (and silver) to run up. Gold (and silver to a lesser extent) are the only REAL MONEY, not susceptible to depreciation like all other "fiat" currencies. For the past 5000 years or more, it has held its value and not depreciated - which cannot be said for almost any other asset.

Therefore the basis for Gold to rise would be a total loss of confidence in a large part of the world's population towards all other "assets" for different reasons. This will lead to panic and a rush to gold and silver (which, unlike land, will turn out to be the only asset to run out of stock).

When you have trillions of all kinds of currencies running behind very meagre amount of physical gold for reasons of life and death, you will see an unbelievable jump in the nominal price of gold/silver.

Its already started. Indians thought that, with prices going up last year, they would slow down their purchase of gold and automatically prices would come down. As a result, China (which saw a policy change this iear allowing private ownership of gold after several decades) is already running 19% greater sales to private buyers than India in the first 9 months of 2009. This year, China will overtake India for the first time in recent history as the largest retail buyer of gold. This is like 2.2 times India's normal purchase replacing India's normal purchase. which, in itself is a massive jump in gold purchases. And much of these purchases are likely to be locked up and not reappear for resale in the markets.

Almost all Central Banks are overtly or covertly buying up gold. Spot premiums for gold is touching 25% over market prices for physical delivery.

If you think the scare of land not being made anymore and going into short-supply is an important reason driving prices up, just wait for the same reason being used to raise gold prices!!!

Try to buy investent grade gold and take physical delivery where possible. Make sure you are getting genuine gold as there is already a steep rise in fake gold (basically tungsten, which is of an almost exact same density) even from reputed sources.

cheers

blogger

30-50% appreciation in 2010???? Looks very unrealistic to me!!! It could appreciate a bit, maybe about 10%.

enduser

Oh! What a way to dream!

You can't infinitely keep on increasing salaries. That is NOT feasible. In 1977 we were developing, today also we are still developing but are better placed than 1977s, After couple of years, we may saturate and remain so for many years (may even come down as well).

Plus what if there is a -ve population growth? What if due to global warming, your land becomes untenable to live? So your 1 Cr. land may remain at 1 Cr. even after 30 years (or may even vanish!)