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Real Estate Bubble Set to Burst Again in India

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Real Estate Bubble Set to Burst Again in India

Last updated: 4 weeks ago
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  • Re : Real Estate Bubble Set to Burst Again in India

    Originally posted by amitca9 View Post
    For example recently i came across a company which has taken loan to invest in real estate and has booked around 30 flats in a society coming up in noida extension. The interest rate was around 15%. Now tell me what would be the idea behind this investment and i am sure people might quote that both would be his sister concern and this is way of cheap funding by taking debt in one company and doing sham booking in another company.
    Do you know what deal they got for bulk-booking? 30% lower than current market rate? 50% lower? Other favours a-la DLF-Vadra kind? How can we say what's the idea behind this investment when we don't know any facts?

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    • Re : Real Estate Bubble Set to Burst Again in India

      Originally posted by dhairya View Post
      we bought 280 sq yard land in sector 38 gurgaon for rs 14 lacs.. in 1997. now its more than 2.85 crore.
      I believe you.

      Traditionally, people in India have kept their wealth in farm-land, Gold, livestock.
      With economy opening up, a lot of people started investing in residential and commercial RE.
      People are still scared of MFs and equities. With time, they will realize the benefits and we will see more participation.

      Even educated people don't think critically because of their inherent biases. Like the gentleman who posted a few pages back how buying Belaire would lead to fantastic capital accumulation without doing any analysis that doing a SIP in Gold or equities would have given similar returns.

      If people still want to invest in RE because it gives them a false sense of security or because they 'feel' it gives better returns, its their choice.
      Last edited August 8 2014, 12:03 PM.

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      • Re : Real Estate Bubble Set to Burst Again in India

        Originally posted by kinjalchato View Post
        Interesting to see people comparing RE returns to Mutual funds and not dwell on how RE will halve across the board , go down to 2009 levels , kind of discussions.

        Ofcourse there are perennial disaster theorist , who will see disaster everywhere.
        I am still here with this prediction

        1 cr flat in GGN now will become ~70lac after 3 years...Though I am quite disappointed with a 'delhi durbari' as FM, I still have confidence in my prediction.
        'LIVE FOR INDIA'

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        • Re : Real Estate Bubble Set to Burst Again in India

          Originally posted by southsea View Post
          @KC - "so you are assuming this differential is never going to come down. since 2001 the benchmark rate differential has been hovering between 0% to 4% for almost all the years prior to 2011."

          Not really. See the chart below (left is India, right is US).

          The differential is more like 6-8% and a fairly strong correlation exists. Historically even before 2001, that has been roughly the risk premium India has had to pay. Sure, over short periods it varies, but historical trend has been 6%+.
          Your graph is proves my point that the differential has been different in various periods of time. I do not know where do you see the difference as 6-8% in the years 2001-2008 , except short bursts. It has been 2, 3, 3.5, 4 over several of the quarters and years unlike the present 8%.

          It has been remarkably high since 2011 and as per your mean reversal theory ( which you keep on quoting everywhere ), it has to revert with a mix of interest rate increases in usa and decrease in india.
          Last edited August 8 2014, 12:39 PM.

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          • Re : Real Estate Bubble Set to Burst Again in India

            Originally posted by kinjalchato View Post
            Interesting to see people comparing RE returns to Mutual funds and not dwell on how RE will halve across the board , go down to 2009 levels , kind of discussions.

            Ofcourse there are perennial disaster theorist , who will see disaster everywhere.
            To each his own.

            RE down 50% and stocks stagnant is the same thing as RE stagnant and stocks up 100% or some more plausible combination in between like RE down 30% and stocks up 40%.

            However you need to rise above your baises to see this simple point.

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            • Re : Real Estate Bubble Set to Burst Again in India

              Originally posted by Catbert View Post
              To each his own.

              RE down 50% and stocks stagnant is the same thing as RE stagnant and stocks up 100% or some more plausible combination in between like RE down 30% and stocks up 40%.

              However you need to rise above your baises to see this simple point.
              I do not understand where the bias part comes from.

              This is a RE forum, we will discuss majorly about RE and the topic specifically is wether bubble will burst which is being predicted since 2011.

              Now some want to divert attention by comparing with MF/ Gold/stocks.

              You also presume that RE enthusiast only invest in RE and not in stocks for instance. I have always maintained one should have balanced allocation and such comparisions have no meaning in shorter term. one will always do well over other and hence the need for balanced allocation.

              People have and will invest in RE irrespective of a specific MF has done well or not done well.

              Further the need for looking at evaluating will arise :
              a) when you are a greenfield investor who wants to deploy for the first time,
              b) someone who has a portfolio and wants to rebalance , as parts of his portfolio has not given optimum returns over years.

              It is not my philosophy to keep on tinkering with my portfolio, everytime there is a churn in the economy, unless in my pov it impacts the long term prospects of my investments.

              each to his own,
              Last edited August 8 2014, 01:49 PM.

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              • Re : Real Estate Bubble Set to Burst Again in India

                The problems faced by India are very similar to China. I urge interested people to start following michael pettis's blog.
                Here is his latest excellent post about why China (and similarly India) is in big trouble.
                Bad debt cannot simply be
                Specially see the point #6 and how much its true for India too.
                Let us assume, for example, that the real growth in an economy causes it to double its wealth every 10 years. Real GDP would, in that case, increase every year on average by nearly 7.2%. Let us also assume that during the first ten years, GDP growth was overstated by a failure to recognize investment losses, so that reported GDP growth was actually 10%. Finally we will assume that after ten years, this over-reporting stopped, and the excess GDP was amortized during the next ten years so that at the end of twenty years GDP was once more correctly stated. The numbers how that at the end of ten years, reported GDP would be overstated by 22.9% – that is, instead of doubling, reported GDP would be 159% higher. During the next ten years, as real GDP continued to grow by 7.2%, reported GDP would grow on average by just over 4.4% as the earlier losses that had not been recognized were amortized.

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                • Re : Real Estate Bubble Set to Burst Again in India

                  The current market price is Rs 3600 per sq.ft. and the company purchase price is Rs. 3300 per sq.ft. so they might have got 10% discount.

                  QUOTE=Catbert;1181298]Do you know what deal they got for bulk-booking? 30% lower than current market rate? 50% lower? Other favours a-la DLF-Vadra kind? How can we say what's the idea behind this investment when we don't know any facts?[/QUOTE]

                  Comment


                  • Re : Real Estate Bubble Set to Burst Again in India

                    Originally posted by amitca9 View Post
                    The current market price is Rs 3600 per sq.ft. and the company purchase price is Rs. 3300 per sq.ft. so they might have got 10% discount.

                    QUOTE=Catbert;1181298]Do you know what deal they got for bulk-booking? 30% lower than current market rate? 50% lower? Other favours a-la DLF-Vadra kind? How can we say what's the idea behind this investment when we don't know any facts?
                    [/QUOTE]

                    Just like in stock markets, when one person sells, another buys. Both think they are right. Only time proves them right or wrong. If the company you mention has a track record of making money in RE in both bull and bear markets then you should sure follow them.

                    Comment


                    • Re : Real Estate Bubble Set to Burst Again in India

                      Originally posted by jaijai View Post
                      I am still here with this prediction

                      1 cr flat in GGN now will become ~70lac after 3 years...Though I am quite disappointed with a 'delhi durbari' as FM, I still have confidence in my prediction.
                      Hmm let us see if in 3 years GCR/GCx or even NH8 areas see an appreciation of atleast 30% or they get reduced to 70% of their value.

                      delhi durbari FM is doing a decent job considering the constraint they are under, in terms of policy. I expect some unshackling once assembly elections are over and they get more confident about Rajya sabha numbers. Till then it is administrative reforms is what they will focus on.

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