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Property Price Trends in Chennai

Last updated: May 20 2021
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  • Re : Property Price Trends in Chennai

    Originally posted by rsrsin View Post
    Minor point here is that FIIs when they investin equities or debt in any market will hedge the underlying Fx value to their base currency. So in India they will book forward hedge or INR/USD and hence there is no Fx depreciating risk to them - the only cost the forward premium.

    The reason funds are moving out by FIIs is a different issue in combination of our debt limits allocation methods, offshore demand for redemptions & other more lucrative markets releasing investment limits to FIIs.
    But if the risk crosses the hedge over the time value that i factor in a note , then im exposed in which case its better to call the note and roll the money to else where, this happens too but most debt instruments do have strict expiries so its not like i see currency devaluation and i want to pack bags and run, most maturities wont be reinvested, what happens to those folks who parked money in NRE FDS at 9.5% they are possibly screwed.
    But if you can find a moderately risk free instrument that yields 16 to 18%
    onnu arai rooba vatti then you can pretty much beat the currency fluctuation.

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    • Re : Property Price Trends in Chennai

      Originally posted by SRajagopalan View Post
      RBI's stance is a bit surprising the widespread rumour yesy was that RBI will intervene when 58 is yet, but yet no real signs of it, i feel they are a bit too late to the party. like our indian police in movie climax
      But i want to point out some good hard numbers to ponder upon
      as much as INR devaluing is an alarming fact as perceived , let me know if your views are any different after you see the numbers.
      RBI has a process of montoring the Fx vols, rates, INR volatility etc., through the day and it intervenes only when it finds any of its own set limits are in the potential of being breached. Of course these monitoring mechanism is linked to the money market outlook set by the monetary folks. It does not intervene just because INR is depreciating from say 55 to 58 to a dollar.

      The other point is that India is deplete with any natural resources and is primarily import dependant and hence does not have the normal methods to maintain the rupee on the strong end. The focus is hence being infra, IT, Retail, Pharma etc., to get the FDI funds to come in for longer duration and stay invsted while helping us grow the basics in the country. This will help control the rupee depre process, however this does not seem to be taking off due to various issues with the policies, adminstration challenges, regulatory inconsistency etc.

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      • Re : Property Price Trends in Chennai

        Originally posted by SRajagopalan View Post
        But if the risk crosses the hedge over the time value that i factor in a note , then im exposed in which case its better to call the note and roll the money to else where, this happens too but most debt instruments do have strict expiries so its not like i see currency devaluation and i want to pack bags and run, most maturities wont be reinvested, what happens to those folks who parked money in NRE FDS at 9.5% they are possibly screwed.
        But if you can find a moderately risk free instrument that yields 16 to 18%
        onnu arai rooba vatti then you can pretty much beat the currency fluctuation.
        Fx risk will not cross the hedge - hedges are for specific tenures and these tenures are arrived by the investor basis their expectation of holding their investment and not on any other criteria. The hedge is booked on the same day as the investment is made and not later - it works all the time, the only exposure you end up having is the credit risk on the borrower of your debt. It you choose to retain local currency for further investment, then you spot Fx rate will be close to the hedge as its the same maturity
        Last edited June 11 2013, 12:35 AM.

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        • Re : Property Price Trends in Chennai

          Originally posted by rsrsin View Post
          Fx risk will never cross the hedge - hedges are for specific tenures and these tenures are arrived by the investor basis their expectation of holding their investment and not on any other criteria. The hedge is booked on the same day as the investment is made and not later - it works all the time, the only exposure you end up having is the credit risk on the borrower of your debt. It you choose to retain local currency for further investment, then you spot Fx rate will be close to the hedge as its the same maturity
          Ok we are deviating the topic , but explain me how it can never cross he hedge ?

          I make for example investment in an institutional buy or an NCD or some thing that yields me 12% ( for example shriram transport) i look at its credit rating, asses the risk and buy a protection for 2 purposes, covering the risk of default and the currency fluctuation, now the protection for currency fluctuation is based on fact or prediction that 1 year investment note,we expect INR to devalue from 52 to 58, what happens if it hits 65 then we are out of our protection zone
          Can you brief may be im not following your instrument and i have a different in mind and talking about it

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          • Re : Property Price Trends in Chennai

            $ rate is going to affect inflation.
            Construction costs are going to go up. Labor costs and materials are going to go up.
            Govt to stabilize rupee has to increase diesel prices and cut subsidy to reduce CAD. Electricity rates has to go up. Transport rates has to go up. Shipping rates/import costs go up. That is going to push everything higher. All of this leads to more expensive building costs.

            RE market will remain the same despite the increase in building costs. Land owners - JV guys are going to get screwed. Builder's profit margin will also get hit.

            Overseas investors who invested with our builders are going to run away, most already left Indian RE market whoever is remaining will also pack their bags. The swings are big, not sure to what level folks have hedged.

            This dollar rate enforces what I said previously.
            Market will be slow until 2014 for sure. It is better to start/invest in building (construction/renovation) projects soon.
            Last edited June 11 2013, 12:58 AM.

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            • Re : Property Price Trends in Chennai

              Originally posted by SRajagopalan View Post
              Ok we are deviating the topic , but explain me how it can never cross he hedge ?

              I make for example investment in an institutional buy or an NCD or some thing that yields me 12% ( for example shriram transport) i look at its credit rating, asses the risk and buy a protection for 2 purposes, covering the risk of default and the currency fluctuation, now the protection for currency fluctuation is based on fact or prediction that 1 year investment note,we expect INR to devalue from 52 to 58, what happens if it hits 65 then we are out of our protection zone
              Can you brief may be im not following your instrument and i have a different in mind and talking about it
              I will try to keep this as my last post on this topic as dont want other members to badger me for supporting the topic deviation.

              Rate of interest of the debt is immaterial as the point was loss due to fx depre. If you buy INR 100 of debt (vs $ 50) in India which matures on (say) 31Dec. Then you buy a hedge for INR 100 vs $ on same day (as purchase) having hedge maturity of 31Dec. Then irrespective of whether INR is at 2 (as in this example) or 1.5 vs $ on the day of maturity of debt, you will get the $ as per the hedge rate as you have booked on day 1. Credit risk is different and has to be covered separately.

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              • Re : Property Price Trends in Chennai

                Originally posted by k11 View Post
                RE market will remain the same despite the increase in building costs. Land owners - JV guys are going to get screwed. Builder's profit margin will also get hit.
                The land owners may not necessarily get screwed if the demand persists. ie. the cost of construction will go up, but the rate of increase is not what we see as from the rate of increase of the buying rates. Builders/developers borrowing funds/working capital will have that hard cost adding to their pricing, however for owners/developers have good cash flows/reserves the pricing is still within their own control. So in the later a owner can still develop/build his land and maintain a lower pricing to sell in the market.

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                • Re : Property Price Trends in Chennai

                  Land owner's return should get affected. Demand is slow, operating costs are highs.
                  Today builders do not pay cash to land owners because of lack of cheap funding. Most do JVs. Even the big ones, look at the Blore based builders, almost all their projects are JV. Land owner will naturally get lesser share (as do Builders).

                  Delaying new project launches more will reduce opportunity costs. Who knows, the land owner itself could be leveraged. He might be paying high interest costs. What if it is a political guy and he needs money for the 2014 election. There are lot of factors.

                  Biggest question - What about projects that are already launched and undergoing construction. Builder cannot increase rates in between.

                  Construction cost increase directly affects the builder and land owner (JV) bottom line.
                  They cannot pass the costs to buyers in slow market. People will not pay higher prices now. Demand is not there today in suburban projects which are very heavily based on construction cost and having a very low UDS value.

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                  • Re : Property Price Trends in Chennai

                    Originally posted by SRajagopalan View Post
                    USD can always buy much more if you wait down the line from today to 5 years from now or from 5 years prior to today, thats a given.
                    RBI's stance is a bit surprising the widespread rumour yesy was that RBI will intervene when 58 is yet, but yet no real signs of it, i feel they are a bit too late to the party. like our indian police in movie climax
                    But i want to point out some good hard numbers to ponder upon
                    as much as INR devaluing is an alarming fact as perceived , let me know if your views are any different after you see the numbers.

                    To make it more interesting i took the lowest point 39.11 and extrapolated over 10 years to make the worst case
                    IF you would want you should consider the 10 year with 2003 pricing at 46 and change

                    EDIT - added the chart for 39.XX pricing for 5 years still 8%

                    The fall of INR is more so due to the strength of USD against all majors.

                    The past 10 year comparision period includes 7 years of GFC impact.

                    we all know US was the prime victim of GFC and USD has devalued considerably from 2007 to 2013 (7 Years) due to QE messures of printing/flooding USD.

                    In the past 7 years India was relatively unaffected by GFC.

                    USD has just started its rally and it has a long way to go to make up for the losses in the past 7 years (provided US has turned the corner with GFC impact)

                    I am bullish on USD, US Equities & US RE. There will be correction & False starts but it will eventuate.

                    Comment


                    • Re : Property Price Trends in Chennai

                      Seeing past the effects of currency swings, the RE market is opening up great arbitrage opportunities to people who are in position to exploit it. The beneficiaries need not be only NRI's, it could also be businessmen earning windfall profit from service/export linked industries. Domestic market will also start attracting renewed interest and provide opportunity for retailers to target new segments/markets. Generally we can expect inflation to be high due to the unavoidable fuel price hike and tighetening liquidity by means of further increase in interest rates which could hit affordability of several people..It will mean less buying/conversion..but not necessarily reduction in prices. We will see builders put off or delay projects till it becomes viable to them and try reaching out to different pockets of investors/buyers. We are once again in a situation which could have a spiralling effect of pushing the baseline benchmark of everything. It may appear things have improved on broad scale including better GDP growth for the government including increase in RE prices rates. Whether one profits/loses is going to depend on how they are poistioning themselves. Unless one is hedged for the situation and move their cash to hard assets/stronger currency they may lose to erosion of rupee value. For several years now, The government and many companies have been dependent only on inflation and increasing valuation to show profit. I think that trend will continue due to vested interest. Liquidification of assets doesnt seem likely to happen unless all hell breaks lose due to another global crisis. The more this continues, I believe Stagflation is going to be unavoidable in India. I feel we already are seeing the effects.

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