Lessons for RE markets from Stock Markets
Once upon a time, maybe till about 2 decades ago, people used to buy property for living purposes only but as the country opened its gates for integration with rest of the world economy in 1991, disposible incomes in hands of people began to rise as salaries and savings rose, and they began to look for avenues to park their extra wealth.
Though stock markets always gave best returns(averaging around 18%) for last 100 years, with tighter regulations, it became almost impossible to park black money into it by the turn of this century.
That was when, gold and reality, caught the imagination of speculators. In last 10 years alone, gold rose from around 4000/10gm to currently around Rs 30,000/10gm. Similarly, Sensex, the barometer of stock markets, rose from levels of around 2800 in 2003 to 21,000 in 2008. Both giving around 800% return in 10 and 5 years, respectively.
Sensex, from 21,000 levels in Jan, 2008, collapsed to levels of around 8800 in March, 2009, and recovered subsequently to current levels of around 17,000 but neverthless, has never reached even near to all-time highs of 21,000+ formed in 2008. At that time, everybody was talking of sensex at least doubling in next 4-5 years but leave alone double, it is struggling to sustain even near current levels.
If we talk of reality scrips during this period, DLF launched its IPO at Rs 550 in 2007 and was over-subscribed by more than 40 times. It touched a high of around Rs 1600 in 2008 before making a low of around 120 in 2008 and is currently quoting just above 200Rs. Mind you, DLF is and was the No. 1 RE company in the whole country and has land-banks worth over thousands of crores but its net debt too stands over 22,000 crores presently.
For other examples, Unitech made a high of 550Rs in 2007 and went below par value in 2009 before quoting at 32 at present while HDIL made a high of Rs 1900 in 2008 before quoting around 88 at present.
4 years back, it was said that they had huge land banks, demand in a country like India will never slacken, you cannot make even an inch of land, etc, etc. and since they have delivered 100%, 200% returns in year goneby, their story can never 'fail' and they will only rise and rise.
Of course, small investors are the last to enter at peak and burnt their fingers most, believing such stories and unfortunately, I find the same corollary currently happening in RE markets.
This reality boom was fuelled in metros like Delhi by low interest rates, almost at 6-7% compared to 11-12% currently, easy availability of home loans, metro connectivity, etc but all this are in price since prices have appreciated in most residential areas by 5-10 times in last 10 years.
Once again, we find people saying since an area has delivered 500-1000% returns in last 7-8 years, so this is the best area to invest! But shouldn't we ask, if that's the case, is it time to book profits or a call for fresh investors to come in ! One could understand brokers or builders saying this since its their business but seeing some small investors who have some small investments in their chosen area doing this, is a very dangerous and irresponsible thing to do.
One should also remember what happened to commercial property. Dot com boom fuelled demand for office space but once the euphoria ran out, prices of offices in most places are nowhere even near the peak prices 5 years back. Retail space in malls was in biggest demand 5 years back but now only vacant empty spaces stare you almost eveywhere with prices not even worth speaking at most places.
If that's the case, why isn't anybody recommending anyone to invest 50-60 lac in Gold which is a far liquid asset. Gold too has returned 800% in last 8-10 years and you can invest even 100 Rs in it though Gold ETF unlike RE investment where ticket size is minimum 50 lac nowadays.
One thing every investor be it of Reality, be it of Gold or stock markets should understand is that past performance is no guarantee for future returns.
With global markets in turmoil, esp. RE in US, Europe and China, warning bells are already ringing in India as well. Smart investors are already cashing out their holdings as seen by 10-15-20% correction in most markets around the country.
Since liquidity is quite low in RE as compared to bullion and stock markets, the effect in prices is felt far later than tremors have initially started. Already, new property registrations in Mumbai and NCR Delhi are down by 57% y-o-y and are further lower in micro-markets around the country.
While this trend spells a boon for end-users who have been waiting for a correction, speculators should turn far cautious than they are at present.
Don't just go by my Name
|lessons, markets, stock|
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