We have been having a lot of conversation speculating on the future prices of RE market, and I have been participating in it every now and then. Many members in this forum have taken different view to predict what could happen to the RE over the next few years.

I think we have thrown the fundamentals out of the window in our discussions. Let's try to find answer to some fundamental questions :

1. Assuming that percentage of workforce earning more than 10 lakhs / annum are the key to move RE (at least in cities) forward. We have had many many times (i.e., few hundreds %) increase in the last few years. Thanks to outsourcing. The sum was very less in before 2004. What is going to be the increase over the next 5 years ? Double ? Triple ? In the past 1 year at least, if at all, that workforce has stayed constant.

2. When it comes to RE, it is all about location. Let's take the case of Velachery. In 2004, many nay sayers said it is a low lying area and the price appreciation will not hold water. It has had a fantastic run since. It beats even central chennai in % returns. It was mainly due to the IT companies investing heavily in Siruseri. So, it is all about location. What areas do you think will attract lot of investments, both from government and private sector and why ? What are the future developments in the offing ? Is it a pie in the sky idea (like the new airport for chennai) ? Hear it out with a discerning ear.

List it the investments in your area. If you have government investments like train station or a market or mall, it will add value in the long run. Of course, when you buy it today, you will pay a premium for that appreciation. There is no free lunch.

3. The regulatory changes happening throughout India will have a say. India is opening up since Narasimha Rao government, we have had huge benefits from this especially in attracting FDI. The changes could change the market significantly. For e.g., the introduction of REIT (Real Estate Investment Trusts). Many small investors in particular like Pooled investments (look how fast the Mutual fund industry has grown in India). So, this could increase the number of players in the market and thereby, affect the market.

(I will try and explain the difference between the land and flat or houses in a minute, )

4. (We have 2 cases here. Read on.) What moves the RE ? To put it more broadly, what moves any market ? Yes, demand and supply, but what causes the demand to raise ? The underlying cash flow generated from it - profits. To be RE specific, the yield or rental yield. Let's forget about RE for a moment and discuss a bit about bonds. Bonds Vs. RE ? Sounds crazy, I know. Please stay with me for the moment.

Case 1 :

When you buy a corporate bond for e.g., 5 yr ICICI Bank bond paying 10% coupon for Rs. 1000. By buying this bond, you are essentially lending money to ICICI Bank to do whatever they want to do for the next 5 years. When their time is up you can sell it back to them and receive your capital back i.e., Rs.100 back. They also pay you (1000*5%=Rs.50) every six months (usually), i.e., Rs. 100 every year. The cash flow is about 10% of capital every year. In between, whenever the RBI raises the interest rates, the price will go down below Rs. 1000 and whenever they decrease the interest rates, the bond will sell at a premium (i.e., above Rs. 1000).

Case 2 :

Another case is Zero coupon bond. The difference is there is no pay off. Let's take a 8 yr ICICI Bank Zero coupon bond. Like it says, there is no coupon generated from this bond. There is no cash flow from it. But the bond is issued at a price less than par value - i.e., say about Rs. 60 and the bond value increases over the next 8 years and you can redeem it at par value - Rs. 100.

Case 1 is flat and case 2 is land. Land is a dead investment, i.e., there is no cash flow generated from it. You should essentially prepare yourself to put it away for many many years.

Now that you know the difference, what do you think the increase in rental over the next few years ? Is a 5% year on year increase sustainable ? If not what do you think is sustainable ? Before you begin to think of yourself as a flat owner, think of yourself as a tenant. Would you be okay if your landlord increases the rent by 5% every year ? If yes, then go ahead and assume it. Would you pay Rs. 20,000 for a 2 bed flat in Velachery ? if not why ? Would you rather buy ? If so, why ? What if everybody thinks your way, at some point in the future there will be oversupply in the rental and the rent income will be down, so is the RE prices.

There are of course, many many things that could move the market for e.g., politial uncertainty. In the next election, we have a hung parliament for next 5 years, you wouldnt be able to sell it when you want to!

But don't buy until you have understood what you are buying or buying into.

Thanks,
Salim.
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  • Even Roubini is saying the same thing ... :)

    Originally Posted by contra
    The Chinese government have proven to be more focused than indian government in one way.

    The chinese are accumulating natural resources by acquiring large stakes in mining companies, mines, entire countries by using their reserves. Given below is a interesting article

    ]http://www.kitco.com/ind/Summers/jun192009.html

    Even China had a stock bubble which burst, even China had a real estate boom ...very similar and identical to us India their historical/geographical neighbour.

    But China can afford them because they have reserves. Unlike in the past decades chinese are not dependent on foreign money anymore...in fact they are now not only self sufficient in capital they are the world's largest creditor nation.

    India on the other side, has a current account deficit...so we cannot and should not even try to afford stock bubbles and real estate booms. Our country is heavily dependent on foreign money both for stock market as well as real estate booms which is a bad sign. We don't have sufficient domestic capital and are heavily dependent on foreign capital.

    Government of India can only afford very limited stimulus and create very few thousand jobs....anything more will make them broke. So all our youth=> jobs=>demand=>stock boom all depend on foreign capital which is not a good sign.

    If i had the means and permission i would rather invest all my money in chinese stocks than indian stocks.


    You are correct. Our growth will be muted due to this weakness of dependence on OPM and not on our own surpluses. With the huge pressure of our growing population, this muted growth will also see muted salaries, jobs and profligate spending. Everything will rise slowly.

    cheers


    You are correct. Our growth will be muted due to this weakness of dependence on OPM and not on our own surpluses. With the huge pressure of our growing population, this muted growth will also see muted salaries, jobs and profligate spending. Everything will rise slowly.

    cheers


    You are correct. Our growth will be muted due to this weakness of dependence on OPM and not on our own surpluses. With the huge pressure of our growing population, this muted growth will also see muted salaries, jobs and profligate spending. Everything will rise slowly.

    cheers


    You are correct. Our growth will be muted due to this weakness of dependence on OPM and not on our own surpluses. With the huge pressure of our growing population, this muted growth will also see muted salaries, jobs and profligate spending. Everything will rise slowly.

    cheers
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  • hey contra,
    we all thought u were a bull.Why have you become gloomy all of a sudden ?
    And admiring China of all places.The downtrodden in China will surely rise in revolt one day and then what will happen to their economic stability ???
    The richer the country gets the greater is that danger....
    regards unlikely
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  • Originally Posted by wiseman
    Maybe you should hang yourself as you suggested Nats. Not advice. Just a thought! :D

    Don't feel "J" that while you have been spending months, if not years, trying to palm off your marshland to some poor sucker for a fortune much beyond its true value, this guy finds it easy to sell all in white! Be a little more realistic and you will find rerady buyers!!!

    All the best :D

    Sorry folks for this digression. Had to get this pest out of my hair!!!

    cheers

    You have tried to talk off the truth as usual. How come you had the land just a week plus ago! So is it imagination. I think you want me to feal Jealous about your imaginary properties! LOL! As for marshland, do you know properties around Arcot ROad which are marshland? As for Koramangala, it was a marshland. In 1996 my colleagues in Wipro did not even want to shift there as it was considered out of town! They were asking Premji to provide bus service and then he said in his famous quote that "Wipro was not in the transportation industry". How pitiable as he did exactly the opposite in just an year from then.
    Even today there are many localities in Koramangala that are piece de shit. Viveknagar is around that half km from Koramangala and I suspect you are referrring to that.
    BTW, I strangely suspect that you are creating new HAWA every post.
    First about a degree from NEXT ONLY TO IIMA college - WITH NO NAME
    Second about RK Salai - and not selling even after claiming fall in Chennai market for ages
    Third is this creation of land in Koramangala.
    I just took those from my QUICK memory since the amount of fictitious creations you have done far exceeds your posts! LOL!
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  • Originally Posted by wiseman
    . In fact almost all the employment increase has come from Govt jobs, net-net.
    cheers

    Note that statement. Govt jobs are reason for employment unlike one Lovebird stating that all jobs are from IT and in particular his favourity Satyam.
    Assuming the above is right, with such risk free jobs around will not RE scale new heights? I wonder if the bears are having any logic at all or simply praying on this board that RE should fall.
    Just yday or the day before there were plots being sold in Vellore for 700psft or so! And we are claiming a falling RE market.
    Looks like these bears are struggling with their Goebbel theory and probably assume that if they hijack this board they can create a Stockholm syndrome.
    Well I pity these silly bears, but then who cares about them. Only the fools who follow them are going to be such losers that they might be commiting suicide missing the second bus now.
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  • A simple reply

    Originally Posted by Natarajg007
    Liar man, you have tried to talk off the truth as usual. How come you had the land just a week plus ago! So is it imagination. I think you want me to feal Jealous about your imaginary properties! LOL! As for marshland, do you know properties around Arcot ROad which are marshland? As for Koramangala, it was a marshland. In 1996 my colleagues in Wipro did not even want to shift there as it was considered out of town! They were asking Premji to provide bus service and then he said in his famous quote that "Wipro was not in the transportation industry". How pitiable as he did exactly the opposite in just an year from then.

    Liar man, your value on this board is ZILCH. So no point if you got this pest of your back. Nobody cares for your worthless posts.



    You say nobody cares about my "worthless" posts.

    Sure, since you are nobody and you don't care, you must be right, no?! :D:D:D

    About other somebodys. I'm sure some of them find some of these posts worthwhile, no?

    cheers
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  • Originally Posted by wiseman
    You say nobody cares about my "worthless" posts.

    Sure, since you are nobody and you don't care, you must be right, no?! :D:D:D

    About other somebodys. I'm sure some of them find some of these posts worthwhile, no?

    cheers


    Dear friends

    I care for what wiseman says. He says what is real.

    Thanks Mr. Wiseman

    Chataara
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  • Originally Posted by unlikely
    hey contra,
    we all thought u were a bull.Why have you become gloomy all of a sudden ?
    And admiring China of all places.The downtrodden in China will surely rise in revolt one day and then what will happen to their economic stability ???
    The richer the country gets the greater is that danger....
    regards unlikely


    Downtrodden in China will rise not to revolt but to celebrate. Per capita incomes in China are low because of devaluing Yuan to help exports. When Yuan appreciates incomes will multiply across China while inflation will still be low.

    India should also appreciate Rupee to reduce dependency of foreign money. If Rupee appreciates, not only will indians become wealthy with low inflation, our domestic companies will become world leaders....thus eliminating need for foreign money. Even our oil bill will fall creating domestic savings. India has natural wealth like most fertile land, widest variety of agricultual commodities like coffee, tea, spices, rice,sugar,cotton all of which will become very valuable. Only issue is some exporters like IT are killing the Rupee and not making us realize full economic potential of our internal natural wealth. Even the government focused on IT as that was low hanging fruit....but now common sense may prevail that we always had this underutilized natural wealth which no other country including China has....a tropical climate with most fertile land conducive for widest acreage of agriculture.
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  • Originally Posted by wiseman
    You say nobody cares about my "worthless" posts.

    Sure, since you are nobody and you don't care, you must be right, no?! :D:D:D

    About other somebodys. I'm sure some of them find some of these posts worthwhile, no?

    cheers

    I really pity your note! Just one Chatara jalra to help you.
    Anyway having 1001 posts, almost 20% of the 4989 posts in Chennai forum and with KS doing almost a similar amount, I think I wont waste any more time telling you where you stand.
    Honestly I thought there will be more support for you than Chatara, but I feel sorry you did not get it.
    Wiseman I wont trouble you in future even if you come for an argument. It is a waste of my time. I have decided to treat you the way I do with Strong, Chatara, Lovebird etc. Just ignore you.
    You are free to express your views. I am also going to spend limited time on this board hence forth for a period of 3 to 6 months, by when it will be clear if RE is moving up or down. I hope then all those who did the wrong act will know who is right.
    Take care.
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  • Citigroup Plans to Raise Salaries by as Much as 50%
    ]http://www.bloomberg.com/apps/news?pid=20601087&sid=a4WO.OOP1vAc
    Though this is to compensate bonuses we are seeing salary rises not falls that too in the US. In India about which World bank commented just 2 days ago as the one of 2 countries (other being China) with super growth I think salaries will not fall. Also much to the dismay of that fellow who writes about Satyam retrenchment regularly it is no longer Satyam but Mahindra Systems!
    So there is no more bad news to come though good news is only trickling in. If you catch the chance now you will gain. If you wait for good news to come, that will happen after a bull run in RE has gone 50%. Then buying is stupid.
    All the best.
    Though this is to compensate bonuses we are seeing salary rises not falls that too in the US. In India about which World bank commented just 2 days ago as the one of 2 countries (other being China) with super growth I think salaries will not fall. Also much to the dismay of that fellow who writes about Satyam retrenchment regularly it is no longer Satyam but Mahindra Systems!
    So there is no more bad news to come though good news is only trickling in. If you catch the chance now you will gain. If you wait for good news to come, that will happen after a bull run in RE has gone 50%. Then buying is stupid.
    All the best.
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