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Real Estate bubble in India

Last updated: June 30 2013
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  • #71

    #71

    Re : Real Estate bubble in India

    Originally posted by contra View Post
    Ok like you said if people listen to Nats and decide to buy land in chennai.

    How many people can buy land in annanagar, adyar, mylapore...forget these....how many people can buy land in tambaram, ambattur without taking loans.

    If everybody is rich and can buy land with 100% cash of thier own ...i will be the first person to agree with nats ( by the way on some other issues like stock trading i have agreed with him in the past).

    I didn't expect this illogical explanations from you of all the people nabhishek.
    Hi Contra,

    I am not surprised you found my comment illogical.

    As you have pointed out, its because when seeing it in the context of current land prices, makes it sound so.Availability of easy credit and prospects of ever increasing salary made people to buy flats at huge costs, raising the land price to exorbitant levels.

    Be it early in the career or post retirement, Making a property investment sometime in life is part of our culture.

    I believe understanding true facts about RE investing and appreciation should not be ignored just because the present mood is that current prices are not sustainable.

    From what I know, RE appreciation happened in the recent past as follows

    1.Investors and speculators buy land where they believe it will develop in future.
    2.Original residents start living/renting there doing small occupation nearby for several years.
    3.Due to a boom or new development nearby,lots of activity and development starts to takes place.
    4.Second rung of investors(individuals and builders) identify the location and show interest, they look for resale plots/Joint ventures prospects and buy lands from original residents.
    5.New people start wanting to move in,setting in gentrification.Demand increases and land prices appreciates considerably.Commercial establishments are set up,shops and supermarkets come up, schools develop,government plans infrastructure development etc.
    6.End users show interest, Builders tie up with banks to offer attractive loans and prelaunch their projects creating expectations.
    7.As demand exists, builders keep increasing their price every week or fortnight.
    8.The fact that flats got sold at high prices by the builders, forces the land prices to also adjust/increase accordingly.
    9.Seeing the price increasing sharply, next set of End users/investors, who hear the development late from the news buy land and flats at the high price taking huge debt leading to further hike in price.
    10.After a level, The location becomes saturated when the demand ceases and property rates become unaffordable.The price may now stagnate or start correcting considerably before demand picks up again.

    To be able to repeat the above step1-10 performance,choosing the already appreciated/inflated location is not a good idea in my opinion.
    The key is to identify the next opportunity and invest in the right location(liveable),right price(affordable) at the right time(market bottomed out).

    As for current Chennai RE trend, I believe the builders, banks and brokers cartel have inflated the rates further more than how much it actually appreciated due to demand during the boom.The appreciation was largely fueled by availabililty of easy loans.With most of the factors fuelling the boom and demand at current rates now non-existant, correction is imminent.

    I have explained in my "Chennai price trends" thread in detail how the cost of borrowing is believed to be 10% p.a. and leverage is profitable only when returns from appreciation of the property(underlying land worth) covers more than the principal repayment,interest outgoing,tax,maintainence expenses,rental income/loss etc.

    Also, my take on value for money indicator on whether flat,independant house or land is a profitable buy and how much depth I expect correction to pan out is already discussed there.Dont want to repeat it all over again.

    I know many people, who think RE investing should be done only by taking loan.They dont even know, why?

    They are misled by banks,financial instituitions and asset management firms who claim leverage and tax benefits only gives the 20-30% CAGR.That assertion is no where near the truth and I try to write about it on every opportunity i get.

    Finally contra, Whatever your stance has been you have always supported them with valid arguments.I really appreciate your contrarian views expressed here, and request you to continue writing.

    Comment

    • #72

      #72

      Re : Real Estate bubble in India

      Didn't quite fail in stock trading ...

      Originally posted by Natarajg007 View Post
      Failures in stock trading can be covered with stop losses. Failures in RE trade cant be managed that way. After selling for a song, you cant get that piece of fantastic land ever again!
      I think Wiseman will learn from his failed stock experiences and learn to talk more logically with RE. After all his misjudgement wont cost just him, his own money but those of many who may unwittingly think his view is right on RE and act inappropriately! God save them from him!

      Nats,

      Please read carefully. My call for Nifty to reach 3800 failed by 17% only.

      But my trades were immensely profitable (over 140% profit on the way down and around 40%, and holding, on the way up in the last 2 weeks since Budget!!!)

      Do not confuse one with the other.

      I also do delivery based buying of stocks and that has its own, completely different basis. The basis is quantity accumulation as well as returns through dividends - I call it dividend portfolio building and I expect it to form my pension plan for the future (already oer half my pension comes from dividends already and I expect it to become full within next 5-7 years). Most people who buy-n-sell stocks don't even know what a dividend portfolio is even after doing it for years - they believe their fortune comes from short-term Capital appreciation!

      I completely compartmentalize these things and approach each (derivatives, stocks, RE, Gold) with different goals, timeframes and strategies. Took some time for me to learn the discipline but its in place now.

      Therefore, my calls on RE has nothing to do with the posts on stock trading. I'm sure no one is confusing one with the other as I'm quite clear about the reasons why I'm stating certain things . For example, when calling the swings on the Nifty, I don't simultaneously tell people, buy RE because the Nifty is going up 1000 points!!!

      If you insist on getting confused, nothing I can do about it!

      cheers
      Last edited by wiseman; July 18 2009, 03:11 AM.

      Comment

      • #73

        #73

        Re : Real Estate bubble in India

        Development model

        As you have pointed out, its because when seeing it in the context of current land prices, makes it sound so.Availability of easy credit and prospects of ever increasing salary made people to buy flats at huge costs, raising the land price to exorbitant levels.

        Be it early in the career or post retirement, Making a property investment sometime in life is part of our culture.

        I believe understanding true facts about RE investing and appreciation should not be ignored just because the present mood is that current prices are not sustainable.

        From what I know, RE appreciation happened in the recent past as follows

        1.Investors and speculators buy land where they believe it will develop in future.
        2.Original residents start living/renting there doing small occupation nearby for several years.
        3.Due to a boom or new development nearby,lots of activity and development starts to takes place.
        4.Second rung of investors(individuals and builders) identify the location and show interest, they look for resale plots/Joint ventures prospects and buy lands from original residents.
        5.New people start wanting to move in,setting in gentrification.Demand increases and land prices appreciates considerably.Commercial establishments are set up,shops and supermarkets come up, schools develop,government plans infrastructure development etc.
        6.End users show interest, Builders tie up with banks to offer attractive loans and prelaunch their projects creating expectations.
        7.As demand exists, builders keep increasing their price every week or fortnight.
        8.The fact that flats got sold at high prices by the builders, forces the land prices to also adjust/increase accordingly.
        9.Seeing the price increasing sharply, next set of End users/investors, who hear the development late from the news buy land and flats at the high price taking huge debt leading to further hike in price.
        10.After a level, The location becomes saturated when the demand ceases and property rates become unaffordable.The price may now stagnate or start correcting considerably before demand picks up again.

        To be able to repeat the above step1-10 performance,choosing the already appreciated/inflated location is not a good idea in my opinion.
        The key is to identify the next opportunity and invest in the right location(liveable),right price(affordable) at the right time(market bottomed out).

        As for current Chennai RE trend, I believe the builders, banks and brokers cartel have inflated the rates further more than how much it actually appreciated due to demand during the boom.The appreciation was largely fueled by availabililty of easy loans.With most of the factors fuelling the boom and demand at current rates now non-existant, correction is imminent.

        I have explained in my "Chennai price trends" thread in detail how the cost of borrowing is believed to be 10% p.a. and leverage is profitable only when returns from appreciation of the property(underlying land worth) covers more than the principal repayment,interest outgoing,tax,maintainence expenses,rental income/loss etc.

        Also, my take on value for money indicator on whether flat,independant house or land is a profitable buy and how much depth I expect correction to pan out is already discussed there.Dont want to repeat it all over again.

        I know many people, who think RE investing should be done only by taking loan.They dont even know, why?

        They are misled by banks,financial instituitions and asset management firms who claim leverage and tax benefits only gives the 20-30% CAGR.That assertion is no where near the truth and I try to write about it on every opportunity i get.

        Finally contra, Whatever your stance has been you have always supported them with valid arguments.I really appreciate your contrarian views expressed here, and request you to continue writing.[/quote]


        From the RE development at Pune:

        1. The Bldrs/proxies/politico/Babus move into a location on insider info.

        2. Lots of cars starts to visit a particular area, bldrs start to court the local villagers with lucratic offers. The bldrs/investors start to buy land in Acres and start to fence.

        3. This means something is planned in the area.

        4. A new airport/ Education zone / Ring road /Tech park - something is going to come there

        5. Now some smaller dealers start do private layout and sell to more investors in smaller lots after doing the requisite clearances/development.

        6. Bldrs plan and start to sell developed plots/ resid/commercial projects to make huge profits.

        7. As the self feeding cycle continues the plot sizes reduce and the prices continue to zoom up.

        8. Finally the prices touch unreasonable levels as much as central areas. Now u can know that the prices r unreasonable and unsustainable in the area, boom or noboom

        Comment

        • #74

          #74

          Re : Real Estate bubble in India

          Poll doesn't tally up to 100%!

          Did you notice this about the poll at the beginning of this thread?

          Total up the percentages given on the right. The total comes to around 112%!

          More creative maths, I guess!!!

          cheers

          Comment

          • #75

            #75

            Re : Real Estate bubble in India

            Every commercial entity does this as a routine practice. So, why are people surprised when traders do it to cover risks? Maybe others are always itching to find reasons to deride traders and say, "see, I told you! Its all a gamble".

            oh, no, nothing wrong in covering your bases. you have to if you are investing your own money into the market. i do that, too. i was merely pointing out that nobody can make his decisions based on pure technicals. you can't write formula to predict human behavior. anyway, i have bought put options on nifty, because i think markets will correct before july 30th (only because they have gone up too far). let's see.

            Comment

            • #76

              #76

              Re : Real Estate bubble in India

              Stocks vs RE

              RE has a solid ground unlike the ephemereal stocks.

              Shares are like fickle papers they were printed on, now-a-days the demat

              form does not give that feelings also. So u might own stocks worth lakhs

              but what u have on hand to show - electronic sheets.

              Conversely, a single 1000 sq ft plot feels solid once u stand on it what

              ever its worth.so also a flat.

              Methinks: The RE bubble has a bigger edge and the bottoms are shallow

              as compared to any other asset class.

              Comment

              • #77

                #77

                Re : Real Estate bubble in India

                Lets not get carried away ...

                Originally posted by Sansei View Post
                RE has a solid ground unlike the ephemereal stocks.

                Shares are like fickle papers they were printed on, now-a-days the demat

                form does not give that feelings also. So u might own stocks worth lakhs

                but what u have on hand to show - electronic sheets.

                Conversely, a single 1000 sq ft plot feels solid once u stand on it what

                ever its worth.so also a flat.

                Methinks: The RE bubble has a bigger edge and the bottoms are shallow

                as compared to any other asset class.

                Sansei,

                You sole measure of an asset seems to be the ability to stand on it and feel solid about it!

                By the same measure, the bank deposit you have is also denoted with an electronic sheet. So, do you consider you cash also as "fickle paper"?

                Actually, if you noticed your cash, you will note that it is in fact the most fickle of all papers. It is merely a promisory note by the Govt that they will pay you an equal number of rupees!!! LOL

                In fact this is the greatest con job in the history of the world! The Govt is not saying that they will pay you in Gold or Wheat or Vegetables. The promisory note is an infinite, closed-loop promise of essentially nothing!

                If I gave you a colorful piece of paper (worth 20000 fickees - thats my currency) after you have put in one months work which promised you that in exchange for this paper, I will give you 20000 fickees, what would you think? That I'm a crazy conman, right? But we seem to have no problem believing the Govt, which, in essence is actually bankrupt and is issuing these promisory notes all the time!!!)

                Coming back to our story, there are other, more meaningful ways of measuring the solidity of assets!

                The Stock certificate you hold is actually a promisory note by the company that is backed by (in most cases) solid and productive assets - like the computer you use in your office. If you think stocks of companies are mere fickle pieces of paper, essentially you are stating that the money that permits you to do what you do for a living is essentially bunkum and as a consequence, whatever you do is also bunkum!

                Care to agree with that?

                Its not a mere piece of paper. Its representative of a certain value which is being used productively in the economy. For convenience, it is a piece of paper, just like you cash or for that matter your degree certificate (would you also call that fickle?

                cheers

                Comment

                • #78

                  #78

                  Re : Real Estate bubble in India

                  Originally posted by wiseman View Post
                  Nats,

                  Please read carefully. My call for Nifty to reach 3800 failed by 17% only.

                  But my trades were immensely profitable (over 140% profit on the way down and around 40%, and holding, on the way up in the last 2 weeks since Budget!!!)

                  Do not confuse one with the other.

                  I also do delivery based buying of stocks and that has its own, completely different basis. The basis is quantity accumulation as well as returns through dividends - I call it dividend portfolio building and I expect it to form my pension plan for the future (already oer half my pension comes from dividends already and I expect it to become full within next 5-7 years). Most people who buy-n-sell stocks don't even know what a dividend portfolio is even after doing it for years - they believe their fortune comes from short-term Capital appreciation!

                  I completely compartmentalize these things and approach each (derivatives, stocks, RE, Gold) with different goals, timeframes and strategies. Took some time for me to learn the discipline but its in place now.

                  Therefore, my calls on RE has nothing to do with the posts on stock trading. I'm sure no one is confusing one with the other as I'm quite clear about the reasons why I'm stating certain things . For example, when calling the swings on the Nifty, I don't simultaneously tell people, buy RE because the Nifty is going up 1000 points!!!

                  If you insist on getting confused, nothing I can do about it!

                  cheers
                  Well Wisey you are talking about two things. Trading and Investing. Then you tell you got 17% wrong or whatever. Let me make my view about your view clear.
                  1. If one is trading, one should know how to end, even more than how to begin. If you are 17% wrong or only 1/2% wrong, the problem is if somebody follows you and does not get out in real time with profits, he might be taking heavy losses. In summary I think one should not trade on calls from Wisey and for that matter most analysts (maybe all!). After all if an analyst is that smart he will trade and not be giving calls. Explains why yours faithfully trades on SM and does not dish calls except to any special friend if he asks for one!
                  b. I personally dont know if you make profit or losses. I dont want to chew that up here.
                  c. If you short in short term and go long in long term and if that is your hedging method, I dont care. However that seems to contradict your view that Indian economy is decelerating or collapsing. Why will you go to shares to give you long term dividends if you really think that India is collapsing. Also in that case are not FDs better?
                  d. All this brings me back to square one. It looks like you present a negative image of India and as a corollary about Indian RE markets since you seem to have vested interest in the market coming down. Ofcourse you make the mistake of admitting due to ego that you also go long on stock markets especially investment variety.

                  In net I am forced to believe that what you may be doing and what you are saying dont seem to be the same.

                  I hope you get your argument clean or atleast leave the poor readers free of confusion.
                  To them trading and investing are same. To them RE is a form of investment. To them Indian economy is their only way out. So if you can clarify whether
                  a. Is Indian economy moving up or down?
                  b. Is Indian Stock market worth investing?
                  c. If answer to a. or b. is yes, then why RE is not worth investing?
                  you will let them know which side of the wall you are on. I suspect we dont need cats on the wall. Gotcha?
                  Last edited by Natarajg007; July 20 2009, 03:43 PM.

                  Comment

                  • #79

                    #79

                    Re : Real Estate bubble in India

                    Originally posted by Sansei View Post
                    As you have pointed out, its because when seeing it in the context of current land prices, makes it sound so.Availability of easy credit and prospects of ever increasing salary made people to buy flats at huge costs, raising the land price to exorbitant levels.

                    Be it early in the career or post retirement, Making a property investment sometime in life is part of our culture.

                    I believe understanding true facts about RE investing and appreciation should not be ignored just because the present mood is that current prices are not sustainable.

                    From what I know, RE appreciation happened in the recent past as follows

                    1.Investors and speculators buy land where they believe it will develop in future.
                    2.Original residents start living/renting there doing small occupation nearby for several years.
                    3.Due to a boom or new development nearby,lots of activity and development starts to takes place.
                    4.Second rung of investors(individuals and builders) identify the location and show interest, they look for resale plots/Joint ventures prospects and buy lands from original residents.
                    5.New people start wanting to move in,setting in gentrification.Demand increases and land prices appreciates considerably.Commercial establishments are set up,shops and supermarkets come up, schools develop,government plans infrastructure development etc.
                    6.End users show interest, Builders tie up with banks to offer attractive loans and prelaunch their projects creating expectations.
                    7.As demand exists, builders keep increasing their price every week or fortnight.
                    8.The fact that flats got sold at high prices by the builders, forces the land prices to also adjust/increase accordingly.
                    9.Seeing the price increasing sharply, next set of End users/investors, who hear the development late from the news buy land and flats at the high price taking huge debt leading to further hike in price.
                    10.After a level, The location becomes saturated when the demand ceases and property rates become unaffordable.The price may now stagnate or start correcting considerably before demand picks up again.

                    To be able to repeat the above step1-10 performance,choosing the already appreciated/inflated location is not a good idea in my opinion.
                    The key is to identify the next opportunity and invest in the right location(liveable),right price(affordable) at the right time(market bottomed out).

                    As for current Chennai RE trend, I believe the builders, banks and brokers cartel have inflated the rates further more than how much it actually appreciated due to demand during the boom.The appreciation was largely fueled by availabililty of easy loans.With most of the factors fuelling the boom and demand at current rates now non-existant, correction is imminent.

                    I have explained in my "Chennai price trends" thread in detail how the cost of borrowing is believed to be 10% p.a. and leverage is profitable only when returns from appreciation of the property(underlying land worth) covers more than the principal repayment,interest outgoing,tax,maintainence expenses,rental income/loss etc.

                    Also, my take on value for money indicator on whether flat,independant house or land is a profitable buy and how much depth I expect correction to pan out is already discussed there.Dont want to repeat it all over again.

                    I know many people, who think RE investing should be done only by taking loan.They dont even know, why?

                    They are misled by banks,financial instituitions and asset management firms who claim leverage and tax benefits only gives the 20-30% CAGR.That assertion is no where near the truth and I try to write about it on every opportunity i get.

                    Finally contra, Whatever your stance has been you have always supported them with valid arguments.I really appreciate your contrarian views expressed here, and request you to continue writing.

                    From the RE development at Pune:

                    1. The Bldrs/proxies/politico/Babus move into a location on insider info.

                    2. Lots of cars starts to visit a particular area, bldrs start to court the local villagers with lucratic offers. The bldrs/investors start to buy land in Acres and start to fence.

                    3. This means something is planned in the area.

                    4. A new airport/ Education zone / Ring road /Tech park - something is going to come there

                    5. Now some smaller dealers start do private layout and sell to more investors in smaller lots after doing the requisite clearances/development.

                    6. Bldrs plan and start to sell developed plots/ resid/commercial projects to make huge profits.

                    7. As the self feeding cycle continues the plot sizes reduce and the prices continue to zoom up.

                    8. Finally the prices touch unreasonable levels as much as central areas. Now u can know that the prices r unreasonable and unsustainable in the area, boom or noboom[/QUOTE]
                    Hmm. So your last point says prices in underdeveloped areas touch prices in the central areas and that is the problem.
                    There are two ways out of it. One the central prices rise. Two the suburban prices collapse. The way it has been going is that Central prices rise quite some amount and suburban prices fall a bit, until equilibrium is reached. Inface in Chennai that is exactly what has happened. So is the case in Bangalore. At one point of time, BTM layout was as costly as Malleswaram but well in future maybe Electronics city will get the same wave! When that happens and if Electronics city does not grow that is when the top happens. To the best of my knowledge no top has happened. When that happens prices in Urapakkam will be close to prices in Guindy, prices in Devanahalli will be close to prices in Hebbal. Wait for that and then again if new suburbs like say TIndivanam and say 20km beyond Devanahalli dont become highly wanted then you know the top is happening. If demand continues the suburbs of todays suburbs will grow. If demand sinks then the collapse can begin.
                    We are nowhere near that. There is huge amount of pentup demand waiting to buy. Otherwise the bears here wont write bear stuff. They will just not buy. On the other hand, they are the MOST DESPERATE TO BUY but WANT LOW PRICES. IT JUST WONT HAPPEN! Just another bus to miss! Full stop.

                    Comment

                    • #80

                      #80

                      Re : Real Estate bubble in India

                      Originally posted by wiseman View Post
                      Did you notice this about the poll at the beginning of this thread?

                      Total up the percentages given on the right. The total comes to around 112%!

                      More creative maths, I guess!!!

                      cheers
                      Thanks Wiseman. That is the best you have ever brought out! You have clearly shown how these polls are a total joke and DONT MEAN A THING. Not one bit! All a joke and this time it is the bears joke. Maybe some bulls have to organise a bull joke.
                      The real world unfortunately is yet super bullish much to your chagrin!

                      Comment

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