How do we know if the RE bubble in India has burst or is about to burst? The RE bubble in Japan went through this cycle, the RE in USA experienced the same. Some areas got hit more than others meaning RE dropped by 20% - 30% in some areas and 10% in other areas.
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  • Originally Posted by wiseman
    Nats,

    Use this rule whenever you post something.

    Read your post before submitting it. See if you like the language as if someone else had written the specific post and directed it at you. If you are satisfied, submit. Else, correct till satisfied and then submit.

    Do unto others s you would like them to do unto you! This way, you will ensure people read your post concentrating on the logic rather than the language and get all riled about it!

    Contra. Lets be mature. Stay logged on! :D After all, I do need my alleged "proxies"! :D

    cheers


    I have come back to share some of my little general knowledge with users and members. This will i hope provides sense to users in between all the real estate spin happening by some RE brokers who have never heard of Japan and korea but still say land is limited so its prices will only rise furthur. Thats is worst joke.

    Wiseman,
    i have benefited from your tips not only in RE but also in stocks. thanks
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  • contra,
    i find ur arguments verymuch valid. just a couple of days ago i was thinking about the population density when somebody said land is limited in india. i searched the net and found that japan and india have almost the same population density. so land is not scarce in india as one might think.

    thanks for sharing some points worth considering.

    cheers,
    themonk

    Originally Posted by contra
    Some RE broker wrote " the land in india is limited...some 17% of world population in 3% of land." This argument is a typical sales pitch of any RE broker.

    When you talk to such brokers, just ask them if they have heard of 2 countries in the far east of india known as Japan and South Korea.

    Japan is size of karnataka, but is 8th most populated country in the world. Even though when measured in terms of population/land ratio Japan and India have same density....unlike india 2/3rds of Japan is filled with mountains, lakes, volcanos ( including the beautiful picturisque mt. fujiyama) and earthquakes are common. Which means already for a land scarce country....only 1/3rd of land in habitable.

    Japan is also not a kickass country...it has one of the highest per capita incomes in the world...the most advanced nation in the planet with technological superiority above all nations (except its neighbour south korea..i will also write about south korea).

    So just by taking any RE broker's argument Japan's real estate particularly in habitable locations like Tokyo, and other cities should have been a buy,buy,buy.

    Unfortunately, the world is not your's only to behave as you expect. In japan real estate has crashed since 1990...now even after 19years ....prices in tokyo business district are still 80% down from 1990 peak and bottom is not yet over. Japanese people always dreamt of the bottoming in 19 years but it never came and only prices crashed furthur and furthur.

    South korea is even smaller than Japan. Even if entire 100% land in south korea was habitable still its population density is double of india. Population density of Seoul greater metropoliton area would be 3-4 times chennai greater metropoliton area.

    South korea is considered the second most advanced nation in the planet...though I think they are now equal to Japan, to share the tag of world's most technologically superior nation. In korea they used 8 megapixel s in 2005...only now in 2009 rest of world is seeing this 8 megapixel . South koreans laugh at google...they consider google as very primitive search engine. In south korea the most widely used search engine is Naver...which has 95% market share. South korea had social networks in 2000....rest of world started using myspace and facebook only in 2006. Korea has highest internet penetration with 99% active users on world's second fastest broadband internet connections after Japan.

    South korea has one of highest per capita incomes.

    So this country has (1) technologically most advanced nation status (2) highest salaries and incomes per capita (3)Population density higher than India and Chennai.

    Yet in south korea real estate bubble burst in 1989...and came down 80% by 1996...in 1997 asian financial crises furthur damaged the situation.

    Even korea and Japan with (1) more population per acre land than india (2) incomes much higher than India (3) technological superiority over rest of world..... were not spared. When their RE bubbles burst, land prices just crashed 80% in subsequent years.
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  • Average investor with average investment

    Hi Wiseman,

    Even i have given a live example of an investor in average stocks.

    U have given specific stocks which r blue chip and defensive in nature. Have u seen HLL, ITC going up / Down sharply ever??? They hardly show any movement infact.


    The lessons i have drawn abt rainy day gives the predicament, an investor might find himself. So getting IN and more importantly OUT whether planned / unplanned is very important to meet ur money requirements.

    Methinks: Investments r the best asset but only with ur extra income/excess money.


    PS: Contra welcome back.
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  • Here are a couple of charts about Japan which will scare you!

    Originally Posted by contra
    I have come back to share some of my little general knowledge with users and members. This will i hope provides sense to users in between all the real estate spin happening by some RE brokers who have never heard of Japan and korea but still say land is limited so its prices will only rise furthur. Thats is worst joke.

    Wiseman,
    i have benefited from your tips not only in RE but also in stocks. thanks



    You are welcome, Contra. Its free!:D

    To give you an idea about what happened to Japan - and how much worse its going to get for the US and as a corrolary, for the rest of us - here are a couple of charts about Japanese RE market as well as Stock Market.

    Enjoy!!! And remember that, however impossible people may think things can get, it can get worse than you think!!!

    I was following this when I started telling people in the US in 2006 itself to gear up for a Japan-like fall in RE prices in the US.

    cheers
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  • Whats to be scared about?

    Originally Posted by Vinod Gupte
    PS. I have some old stock papers, would Wisey like to eat it. They have become almost worthless! LOL!
    you are scaring your readers including yours truly. does that mean we should take your advice with a pinch of salt? ok, i am kidding.



    Vinod,

    There are a lot of misconceptions about the Stock market! Obviously the most popular is about it being a gambler's den!

    By corollary, if you are working in Infy or L&T or any of the big companies, you too must be gambling with your career simply because, if these very same companies which are listed on the exchange are gambles, doesn't hold to reason that your employment there too is as much of a gamble?

    Second, Nats comes up with inane stuff about how you must be rich to become rich in stocks. He was citing my example.

    He as usual missed the point that this man who made a fortune in stocks was otherwise a very ordinary middle class person. He probably made less from his salary than probably you and many others. It was his discipline in putting away small amounts of money dilligently every month, insight into which companies were good and which were not, how companies gain in value and the patience to wait till the correct price comes to buy which saw him make that fortune.

    Like I said, practically anyone can make a near-fortune in stocks. ITs just that, now-a-days people are in so much of a hurry to make money that they take gamble-like risks in the market and then go on to blame the market and stocks for their foolishness!!!

    As for the other person who talks about eating the stock certificates, yes, practically every investor in the market - including Lynch and Buffet - have made big mistakes in picking stocks. That not the point. Of every 10 stocks, 3 will be utter flops, 3 will be so-so, 3 will be good stocks and 1 will be a gigantic winner. The profit in that one will eclipse and make up for the losses in all the others by a large margin. Called diversification!:)

    cheers
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  • another great post wiseman.
    btw i have a doubt. do u also recommend diversified mutual funds? should this also be one of the components in the investments apart from direct share purchase?
    thanks.
    CommentQuote
  • Originally Posted by wiseman
    You are welcome, Contra. Its free!:D

    To give you an idea about what happened to Japan - and how much worse its going to get for the US and as a corrolary, for the rest of us - here are a couple of charts about Japanese RE market as well as Stock Market.

    Enjoy!!! And remember that, however impossible people may think things can get, it can get worse than you think!!!

    I was following this when I started telling people in the US in 2006 itself to gear up for a Japan-like fall in RE prices in the US.

    cheers


    Japan is a good case study for anyone who is interested to research on this Real Estate bubble and busts.

    Japan, inspite of such large population density in habitable areas, had such a long crash in land prices.....so this entire theory like " there is only so much land in this world, Buy land, they're not making it anymore" was tossed out of window. If a person had purchased land in Tokyo in 1991 or even 1995......they would have by 2007 lost 70-80% of value (it likes paying Rs.10,000/sq.ft in 1991 or Rs.7,800/sq.ft in 1995......only to see it drop to Rs.3000/sq.ft in 2007). Japan by the way was not even a poor country...it is as explained before a rich country and a technologically superior nation.

    I did a lot of research about Japan real estate in last 1-2 months which opened my insights i must say. What struck me the most was ....there was no major unemployment problem in Japan (expect for some smaller auto makers and suppliers) during this period 1990-2007.

    Japanese exporters like Toyota, Nissan, Honda, , Panasonic, Canon etc continued to be world's best brands and leaders in every market they went. Japan had a trade surplus with any country name it. Japan had the largest current account surplus (only in recent years China overtook pushing Japan to 2nd place) among any country in the world. So it had jobs for its youth, it had one of world's biggest trade and export income, it had current account surplus which was highest in the world...so money was put in people's hands......yet real estate crashed...what happened.

    It is these insights, where inspite of no major unemployment problem...yet real estate crashed in Japan which is very interesting. If land prices rise beyond all fundamentals to unsustainable levels...then they will correct even if there is no employment problem or goverment revenue problem.

    If Japan with all its trade surpluses, current acccount surpluses, huge export income was not able to prevent a land price crash....than how can India with current account deficits, much lower export trade income, high dependency on domestic market which is still small be different and prevent a real estate bust. Are we shooting bullets in air.
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  • I have an illogical aversion to MFs!

    Originally Posted by kaatesha
    another great post wiseman.
    btw i have a doubt. do u also recommend diversified mutual funds? should this also be one of the components in the investments apart from direct share purchase?
    thanks.



    Kaatesha,

    Thanks. Regarding your question, I have an illogical aversion to MFs. Here are the reason why ...

    If you saw one of the best Ads I have ever seen about long term investment - it is the Templeton Ad where an old man wakes up once in a while, carefully studies a bonsai tree, sometimes waters it, sometimes prunes it BUT most of the time he is sleeing and letting it grow - you will realise that for investments to do well, they need time. The Ad was a gem in terms of hitting the nail on the head about how to really invest (the secret of Lynch and Buffet), but it was lost on most people who were only too keen to churn, churn, churn their portfolios!!!

    A long time ago I realised that MFs have been twisted by the managers to cater essentially to their needs - obviously salary and bonuses. Therefore there is too much of churning of the fund to generate brokerage and short-term profits which essentially destroys the ability of the fund to perform in a suerior fashion, long term.

    I'm reminded of a gem of a book I read around 15 years ago which takes a long hard look at how Wall Street rips off customers. Its called
    "Where are the Customer's Yacht?" and is a book 80 years old and is still evergreen in its message. Check its reviews at http://www.amazon.com/Where-Customers-Yachts-Street-Marketplace/dp/0471119784


    Secondly, I have never seen MF managers look over the horizon and pick the next winner. There is too much peer and other pressures to stick to safe stocks. So, you will find the usual Infy, Tata Steel, etc in all the MFs in almost the same proortions. So, where is the surprise.

    Third, whether in one year you are 30% up or in another you are 30% down, the fund managers always bleed you of the 3% in fees. So, this is like a tax on you. Point is, Govt taxes you on income and profits. These MFs tax you even if you have a loss!!!:o

    Finally, there is no more interesting adventure than researching the markets and sectors and companies. There is so much you learn about how the commercial world really works. And you accumulate so much knowledge that keeps you always intrested in apparently discrete and unconnected events - which you only can connect the dots and make sense out of.

    There is nothing more satisfying than properly researching the markets, picking the correct stocks at the right price and see them reach and exceed the levels you had predicted them to go to!

    But for those who do not have the time, put at least part of your money in MFs which are managed well (have a track record in good as well as bad times) and have your kind of stocks in their portfolio!

    cheers
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  • Interesting information on Japan RE bubble from Wiseman and Contra.

    As per chaos theory, when same experiments are repeated under similar environment with no random elements involved and everything seems to be perfectly in order, The outcome can be totally different due to slight variation in the initial conditions.

    What were the initial conditions that setup the RE boom in Japan, was it the same excess liquidity?Could you please also share which event triggered the crash?was it a event like subprime mortgage crisis?

    Also, how did the Price crash affect different locations in Japan?

    To be specific the boom in India saw price rise in Tier I cities first, later Tier II and then followed by Tier III cities etc.

    So,Now that all Tier I cities have seen 30-40% correction, shouldnt the Tier II cities like Chennai, Pune etc follow suit immediately?

    When the Bubble bursts, does it retract the same path that it inflated and show correction in phases or like a typical bubble burst bring down the prices to the initial levels sharply?

    Thanks in advance for your replies.
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  • T. Nagar New Apt sold for 7k

    I came to know that a brand new ready to move in apt, area of more than 1500sft was sold for 7k persft which included the price of car park. The property was located next to murgan idly shop in Nathumani street...
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  • Originally Posted by contra
    Japan is a good case study for anyone who is interested to research on this Real Estate bubble and busts.

    Japan, inspite of such large population density in habitable areas, had such a long crash in land prices.....so this entire theory like " there is only so much land in this world, Buy land, they're not making it anymore" was tossed out of window. If a person had purchased land in Tokyo in 1991 or even 1995......they would have by 2007 lost 70-80% of value (it likes paying Rs.10,000/sq.ft in 1991 or Rs.7,800/sq.ft in 1995......only to see it drop to Rs.3000/sq.ft in 2007). Japan by the way was not even a poor country...it is as explained before a rich country and a technologically superior nation.

    I did a lot of research about Japan real estate in last 1-2 months which opened my insights i must say. What struck me the most was ....there was no major unemployment problem in Japan (expect for some smaller auto makers and suppliers) during this period 1990-2007.

    Japanese exporters like Toyota, Nissan, Honda, , Panasonic, Canon etc continued to be world's best brands and leaders in every market they went. Japan had a trade surplus with any country name it. Japan had the largest current account surplus (only in recent years China overtook pushing Japan to 2nd place) among any country in the world. So it had jobs for its youth, it had one of world's biggest trade and export income, it had current account surplus which was highest in the world...so money was put in people's hands......yet real estate crashed...what happened.

    It is these insights, where inspite of no major unemployment problem...yet real estate crashed in Japan which is very interesting. If land prices rise beyond all fundamentals to unsustainable levels...then they will correct even if there is no employment problem or goverment revenue problem.

    If Japan with all its trade surpluses, current acccount surpluses, huge export income was not able to prevent a land price crash....than how can India with current account deficits, much lower export trade income, high dependency on domestic market which is still small be different and prevent a real estate bust. Are we shooting bullets in air.


    Even though there is no umemployemnt problem(now it is close to 5%) Japan is in deflation for last 18 years.Most of their banks were bankrupt after 1990's and because of government inability to close them survived as zombie banks.At the peak of RE bubble imperial palace(less than 5 sq km) in tokyo was valued close to entire state of california.
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  • Originally Posted by kaatesha
    another great post wiseman.
    btw i have a doubt. do u also recommend diversified mutual funds? should this also be one of the components in the investments apart from direct share purchase?
    thanks.


    Even I don't like to invest through MFs just like Wiseman. In MFs, fund manager is not just managing your money but thousands of other people's money. So their is so much pressure such as (1) beating the benchmark index during good times (2) redemption pressure during bad times. So even a good fund manager will not be able to provide you value even if he earnestly desires.

    If your had invested in Mumbai sentitive index (just invested in index stocks always) in 1984 and withdrawn now in 2009, you would have got the best return on investment. So in 25 year time period the benchmark index has beaten every MF out there.

    So if you want to invest in MFs just put money in a passive fund which just invests in index stocks. Take a systematic investment plan (SIP) and put some fixed savings in this passive fund every month for another 20-25 years. During this time period only whenever the composition of index changes the fund manager will change portfolio accordingly...in other words your systematic savings are always invested in the best companies at that point of time. So after 25 years of systematic investing you can withdraw and enjoy a good retirement package.

    But don't watch business news on TV, don't read newspapers, don't follow day to day movements of index, just neglect the news for this 25 year time period. Don't even be influenced by the spin on internet blogs, forums and social networks. Just don't see or hear anything:D in this period.

    So if you are in age group of 25-35; it is best age to start investing in a passive fund which just copies the benchmark index , and investing systematically through SIP plan every month, till the age of 50-60 is best i feel.

    Wiseman, your thoughts please.
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  • Just one more thing ....

    Originally Posted by contra
    Even I don't like to invest through MFs just like Wiseman. In MFs, fund manager is not just managing your money but thousands of other people's money. So their is so much pressure such as (1) beating the benchmark index during good times (2) redemption pressure during bad times. So even a good fund manager will not be able to provide you value even if he earnestly desires.

    ...

    Wiseman, your thoughts please.



    Completely agree with you with one more piece ...

    Send your time concentrating on your profession and ensuring that the SIP continues to come in every month in increasing amounts over time!;)

    cheers
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  • can some one present if u have info how much does
    land cost in JAPAN (per sq ft).
    before 1991 and in 2009 in a centralised place similar to chennai
    or mumbai.
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  • thanks wiseman,contra.
    coming back to the topic of this thread, in my opinion, it indeed a bubble. because on an average it has gone up by about 500% in just 3-4 years which is not a healthy growth. but i am not sure if its gonna burst. firstly the economy in general seems to have improved. although its too early to call it a recovery. of late we have not been hearing layoff news. and the company quarterly results seem to be good. the job market is a very important factor. and the other thing is that people have developed this mindset over the last few years. i mean take 85% loan, pay heavy EMI and live in a so called own house. this is something very difficult to change. i have seen a lot of people contemplating buying even a few months ago during which the economly was worse. ( i live in bangalore and talking about bangalore scenario here).
    i think sofar we have had only abt 15% correction which is nothing compared to the 500% increase in the recent past. i feel RE falling further will be good for economy. because today RE sucks the major portion of one's savings and earnings. and if people have more money they can put that elsewhere which in turn helps the overall economy. having said that, i dont see that happening. if not coming down, it should stay in the current levels for the next 3 years or so. (so that effectively it will be down considering the inflation.). i dont see this happening either.
    i would like to hear your views on this. i myself in a dilemma. cuz i still think these properties are not value for money.
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