(Found on net)

I had written about Real Estate prices hype in 2008 and was predicting the slow down and the slow down had happened then....Though short-lived.....
The real estate slow down I can foresee now is going to be worst in last TWO decades.....May surpass fall greater than that in 1997-2000, ask anyone who had seen that fall.....

Following are the reasons why I feel Real Estate Bubble will Burst by end of 2014 or early 2015:

Current hype in market prices is because of Greedy Investors trying to double their money every 6 months to one year cycle, as soon as returns start falling down all cheque books will be locked in drawers and the returns now have fallen drastically. Read some reference below for detailed analysis on falling returns


http://media2.intoday.in/btmt/images/stories/May2012/realty-prices-2-enlarge_042812110214.gif

Growth Rate has slowed down in all Major Cities as indicated by graph, hence investors will move out !

Black money of politicians was slowly being withdrawn from cash havens like Swiss Accounts, Mauritius etc and being brought into economy, only best industry where maximum black money can be absorbed is Real Estate......Majority of this money has caused hike in prices and during election all these money will be sucked out of system.....Minimum amount that will be sucked out by elections would be INR 5000 per vote X 250000000 (25 crore voters who vote only when they get money) = 1250000000000 (Hundred & Twenty Five Thousand Crores)....Imagine what will happen to already cash starved industry when this amount is pulled out ?
Builders are already under cash pressure and have exhausted bank borrowing limits and have started borrowing funds from common citizens luring them with attractive returns of 1.5 % to 2 % interest per month.....and here I am not talking of small unknown builder, I am talking of reputed builders and very close friends of mine have been approached for this.....Few days back there was program on CNBC where this issue of cash crunch and falling demand was discussed
Rate of growth is slower than Home Loan interest rates....Currently property prices are growing slower than 10% per year and lot of prospective buyers are thinking of waiting and staying in rental houses
Rental income is far lower than bank returns and this is shooing away investors, for example property worth 60 Lacs as per today's prices may fetch rental of less than 15 Thousand per month, this amounts to less than one third of interest per month which is Fifty Thousand per month 10% per year interest rate, and here I am assuming down-payment that you make also fetches same interest rate, in many cases it may fetch higher if you invest judiciously. Now if your investment has to be viable your property rate should increase 35 thousand per month or approximately 4.2 Lacs per year , which is at-least 7 % per year consistently at-least for first five years, which is rare chance in current conditions

Why Government is not doing anything ?

Real Estate has become speculative market and in such situations there are lot of buying and selling every 1-2 years for same property till the time real home dweller buys it to stay and continues to stay for longer period without selling it.....Since same property gets traded many times government earns handsome amount in taxes and duties, as much as 10% on every transaction and even if one property does 4 transactions in life time government earns 40 % which is highest among-st Builders, Investors, Brokers etc....Its greed of Government in wake of promise to give prosperous India , doesn't allow them to pull triggers....Imagine if Government starts pulling trigger it not only loses Handsome revenue , but also loses entire vote back which will be because of real-estate crash....it will be in the best interest of government to keep this monkey show running....Financially it makes sense and politically it suits their agenda....
Government cannot charge heavy taxes directly , cannot cut down subsidies because of fear of losing vote banks, when the crash happens government would have already indirectly recovered all money in form of hyped up rates and taxes and loser will be common man.....I have started seeing exit of politicians from real estate...my close relative bought one flat from politician (even after my insistence against it !), why politician is liquidating asset ? Of course he has insider news , and they have started pulling out cash for coming elections.....
If crash happens just after elections, government can easily blame on Bankers, Investors, Builders etc and promise stricter controls etc, I am sure they will not refund the registration fee & taxes and duties they collected happily when in boom......And I am sure they will not admit Government was greedy

National Impact of Continuing the way it is ?

Most of people have stopped focusing on their core work and have got involved into speculation and have started putting their money into real estate....This is due to greed or jealousy or sheer lack of knowledge and understanding of complete picture....
Money is not flowing into other industries which might likely to help us grow industries and compete better in world market, on contrary higher real estate prices is discouraging genuine entrepreneurs and banks also have pumped their money into real estate and have limited liquidity to support other industries which has potential to generate foreign revenues, people may argue that we are getting foreign investment in real estate, but please understand difference between getting investment vs. getting revenues....I am talking of foreign revenues here.....
By making it most lucrative investment option , people are pumping money into real estate and selling it at profit to other Indian who also is pumping in his money.....situation is that we are not earning any foreign exchange , we are not developing any competitive skills, on contrary we are making ourselves non competitive as entrepreneurs are vary of getting in due to lack of Government support.....Salaried professionals are expecting more salaries, other countries are struggling with financial crisis and do not want to buy at higher prices so prices are falling......How will India survive ? and what if other low cost nations don't fall trap into real estate mess ? They will have lower Housing and Real Estate costs....That's why easy to setup business.....Lower salary expectations as cost of housing is affordable.....Able to sell services at competitive prices internationally which is very price sensitive market ! Indians will lose on this count too !
Agriculture land getting converted into Non Agriculture land...going rate 20 Lacs per acre for conversion.....By converting Agri land to NA are we doing good to nation or bad ? But who cares as far as greedy stakeholders involved get short term gains, who cares of Mother India whom we are selling and feeling that we are prospering !

By the way I have started betting that slowdown will hot by end of 2014..........Are you ready to bet on odds ?



If you think what I am saying makes sense please forward this to people who think matter to you, in narrow viewpoints I don't want to appeal you to think of National Interests here.... At-least stop your friends and relatives from making investments till early 2015 !


Some More References which you may consider unbiased:

http://www.firstpost.com/real-estate/why-bullishness-on-indian-real-estate-is-misplaced-544459.html
http://indiahousingbubble..in/
Indian property bubble - Wikipedia, the free encyclopedia
Housing bubble can burst: Govt - Indian Express
Indian Real Estate Bubble – will it ever burst?
Real estate prices touch sky, experts rule out price bubble - Business Today
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  • Why just compare only real estate prices between India & US.

    In facts almost most of the items be it car, TV, food items, laptops, mobiles, clothing , petrol/diesel is cheaper in US as compared to India.

    The only thing which is cheaper in India is labor and free advise.
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  • Originally Posted by caplayer2012
    Are you an "INDIAN"?
    Looks Frustrated.



    Yeh Looking Like Indian...

    NRI = Not required in India . ((((((Like me)
    Frustrated ==== No, He can't be frustrated now ---Already having money & Job in US, More than that enjoying the luxury of US unlike we in India (Super Crowd).

    Brother == His post has some fact as well warning.

    If it will happen then?????????

    How can we investors be safe (Less effected ) on that case?? ===Kindly think and suggest..
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  • Originally Posted by caplayer2012
    Are you an "INDIAN"?
    Looks Frustrated.



    you are wrong. He is just pointing towards the signs of bubble. If RE bears have not got it correct for last 2-3 years, it doesn't mean that they will always be proved wrong. They might be wrong for another 3-4 years, but the way its going on it definitely has all the signs of a disaster waiting to happen. The longer the excesses go, bigger will be the disaster.
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  • Originally Posted by ashish18
    If RE bears have not got it correct for last 2-3 years, it doesn't mean that they will always be proved wrong. They might be wrong for another 3-4 years, but the way its going on it definitely has all the signs of a disaster waiting to happen. The longer the excesses go, bigger will be the disaster.


    Very true. Whether one accept the truth or not, it doesn't going to change for us. We have to face it.

    And I really liked the above line "The longer the excesses go, bigger will be the disaster" Trust me, the disaster is going to happen for sure, sooner Or later.
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  • Originally Posted by ashish18
    Then may be you don't know about what happened in end years of last century. land prices near electronic city were selling at less than 1/2 of the prices they had been bought 2 years before (1995-2000). The land prices near electronic city from the peak of those years of 1995 was able to come back only after more than 12 years.


    It was not just electronics city. Even Indiranagar (the most prime area in b'lore) crashed to half. Mumbai flats (don't remember the exact area but I still remember this TOI news) prices crashed from ~2cr to ~50lac.

    Even NEway prices lowered 4k psf in 2008 to 3k in 2009. Check these facts with others.
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  • I remember in our school days we use to study that one of India's major problem is its population. Infact its the other way round and our blessing in disguise is our over population....


    As long as India remains over populated....as long as people keep on migrating to metros for work and settlement....as long as there is a mismatch in smaller cities and metros in regard to development , infrastructure, employment generation etc...as long as India runs on black money and parallel economy...as long as every second person thinks of investing in real estate and thinks himself to be real estate expert....as long as media keeps on printing false and paid news creating all sorts of hype in the market....as long as builder-politicians nexus exists.....REAL ESTATE BUBBLE WILL NEVER BURST IN INDIA.

    Worst scenario will be stagnation of real estate prices i.e no appreciation for 2 or 3 years . THATS IT !!!
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  • It is all about Demand and Supply. Oil is easily available in Middle east, so it is cheaper thr.
    Same way Land is scare in India due to rising population, so it has to be costly.
    Software engineer salary In US can't be same as Bangalore salary. If it is, what is the %?
    Indian software engineers has a capability and skills, that is why more and more jobs are moving to india through outsourcing. If US economy have to survive in long run, they have to outsource. China is already giving tough competition to US manufacturing companies due to their manpower leads to cheap labor cost.
    Indian economy system is strong and doesn't run on credit as in US. Indian education system put more weight on academics and that is why we produce more doctors, engineers, Architect every year than any counterpart. Asian are already used to run after bread and butter and that is why excelling whereas lazy US citizens has to pull their socks to be competitive with them.

    So things are in reverse order. US economy needs to worry as still they couldn't recover fully from recession.
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  • A bubble is known as bubble only when it had gone burst. Otherwise it looks very natural and very obvious and very rational and very prudent to ride the bubble.

    My real worry is for people who have sold other assets like mutual funds, provident fund, fixed deposits etc. to invest in real estate. They will suffer the most when the bubble bursts. The burst is inevitable, but no one can time it.

    If money could grow on tree, it would not have grown as fast as it has grown in real estate. An ideal and time tested truth of bubble burst is when every body denies the bubble.
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  • Originally Posted by royalcity
    This is what we experienced in past 1 month:

    -Builder offer price 5600+ bsp after all negotitations

    -Broker initial offering 5800 all incl.

    -Final deal approx. 5250 all incl.

    - Over the past 1 month we recd nearly 40-50 calls from various brokers. Top Brokers like IC offering ''any tower, any floor'' inventory

    Above for a 2 bhk middle floor unit with expected possession in next 12-15 months in the project called 3C Lotus Boulevard.

    Our offer was clear, crisp and genuine. No random calls or visits.

    We said No to 10th floor and above
    We agreed to pay within 3 days

    I dont know if a bubble will burst or not...but one thing was absolutely crystal clear within 1 month of leg work:

    1. Inspite of just 4-5 nearing RTM options in Noida, the demand to supply ratio is heavily tilted in favour of supply. God knows what will happen once more projects are nearing possession

    2. Nearly 50-60% Inventories are held by broker investors themselves
    The Unit we bought was also owned by a broker in the name of his wife.
    He supposedly has 5 units in LB only

    3. Prices have not moved much in past 4-5 months.


    What conclusion one derives from this, is ones choice.


    Thanks for sharing your detailed experience with us. It clearly spill the beans. When there would be LOTS of RTM properties available for end users in Noida/GNW, and most of the (50-60 percent) investors would try to exit (to avoid registration & other charges), property prices would go down drastically.
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  • Well, I will agree to the fact , that sooner or later this RE bubble will burst.. We cannot predict when but yes at some point of time may be 1- 2 years or 4- 5 years when supply of completed flats will overcome the demand.( when i say demand I mean to say end user demand, not brokers or investor's demand)

    Like any commodity or trading entity, RE can not run away from demand and supply criteria... Today we can see demand is growing but is it real demand. I feel not so because its investors or brokers creating the artificial demand. Moreover they can't hold units for long term. The time when they dispose to market will the time of price stagnancy.
    When I say stagnancy it means very nominal or no growth. Because affordability of end use is not increasing at matching pace like NE price are increasing. In NCR every project is giving at least 20 -25 % return year on year.. Will that pace continue ? Answer everyone know is "NO".. IS affordability or purchasing power is increasing at 20 -25% a year .. I think very less people says yes...
    SO all these factors make me consider that NE bubble will burst....
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  • Originally Posted by shammi
    I remember in our school days we use to study that one of India's major problem is its population. Infact its the other way round and our blessing in disguise is our over population....


    As long as India remains over populated....as long as people keep on migrating to metros for work and settlement....as long as there is a mismatch in smaller cities and metros in regard to development , infrastructure, employment generation etc...as long as India runs on black money and parallel economy...as long as every second person thinks of investing in real estate and thinks himself to be real estate expert....as long as media keeps on printing false and paid news creating all sorts of hype in the market....as long as builder-politicians nexus exists.....REAL ESTATE BUBBLE WILL NEVER BURST IN INDIA.

    Worst scenario will be stagnation of real estate prices i.e no appreciation for 2 or 3 years . THATS IT !!!


    Shammi, you missed the point of bubble - Today the bubble is in price and not in the demand for housing unlike the famed Japan RE bubble. This over population also needs to have that much money to afford the kind of prices the investors will be asking when the projects will be RTM. If the investors dreams are to be fulfilled as per the trend of previous years, 15-20% of India GDP will only become RE in 2-3 years. How do you hope to sustain this ?
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  • Friends,

    Let me share my base case

    If dollar goes to 80 all this anamoly will correct in dollar terms

    For me that's most likely scenarios to play in next 4-5 years

    RE never falls in falling rate scenarios

    The way Chiddu has cut planned expenditures , inflation will come down sharply

    Falling gold will make Indians regret their choice

    Things will be good for assets like equity and gold

    RE will most probably stagnate
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  • Other perspectives:

    1. We (whether politicians, investors, aam-aadmi) are quite conservative/money-savers (even if living in Mumbai, Delhi). What we like is to buy property. Nothing else. No elders/relatives allows/suggest us to make big investment in any other asset (other to real-estate). Even can we? like investing 1 Cr in stock market. My heart started pounding right away.

    2. Migrations will continue and it will increase the price until jobs are here.

    Though i can write more, but cutting to short very simple theory. There might be fluctuation, but never be a crash in india.
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  • Indian real estate market would not crash it may correct though ... Till the banks start funding the projects without looking at the cibil scores.

    So till the time you are needed to pay 20 percent plus and must have 3 yrs of healthy it returns the real estate would witness steady growth no matter how many zillion bytes of data goes on saying that party of re is over.

    Rohit
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  • Originally Posted by jaijai
    It was not just electronics city. Even Indiranagar (the most prime area in b'lore) crashed to half. Mumbai flats (don't remember the exact area but I still remember this TOI news) prices crashed from ~2cr to ~50lac.

    Even NEway prices lowered 4k psf in 2008 to 3k in 2009. Check these facts with others.


    ALAS! that happens for NCR real estate.
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