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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    China premier Wen Jiabao vows to curb real estate speculation

    BEIJING: Chinese Premier Wen Jiabao has vowed that a recent interest rate cut aimed at stimulating economic growth will not ignite a new bout of real estate speculation that would push up housing costs, state media said Sunday.

    http://economictimes.indiatimes.com/...w/14744484.cms

    Is it possible in India to be done by Govt ?? No. Coz politicos & builders or more or less than same chaps. When we have TRAI for 1p/sec fone call, there is nothing for 50L flat with several yrs loan on it. And we still say this is democracy.
    If you are happy, you are successful.

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    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by SanjanaSingh View Post
      Venky,

      Some preliminary findings :

      1] Pune is overpriced, not many independent kothis available, architecture / quality of construction is lousy. The reason I was thinking of buying a kothi in Pune is that in the past year, I've made 50% returns on gold, and I can invest that corpus in RE, and lease it out to some Company. Corporate lease only, not individual.
      Considering the ROC on gold, I'm already buying RE at 50% discount !

      But Pune is overpriced and the calculation is not working out. I think I'll chuck that option altogether.

      2] DDN is a better edu hub than Pune [ not many are aware of this fact ]. RE rates have gone up in the last 6 - 8 yrs, but still very affordable. Beautifully designed and well-built houses.You can rent to Bank / company officers or students.

      Example : If I buy a 2 bed / 2 bath kothi in Banjarawala for approx 18 - 20 L , furnish it with basic items, rent it to students, it will fetch 4000 per room ie 12000. Not a bad return.

      DDN RE has better upside than Chandigarh, Simla, Rudraprayag etc. In large cities and metros, ofcourse, the rental yield is miniscule compared to capital invested -- and hardly any upside potential.

      3] In DDN, its better to go for mid-sized houses of 3 bed / 3 bath sizes, rather than huge ones. Selling smaller units is easier. If one has the money and inclination, one can buy a large house [ 5 / 6 bhk ] for own use.

      4] Many good resale options on Haridwar Rd [ away from the main road is preferable, as this road has become very crowdy after being widened ] Check out the areas surrounding Defence Colony. Also Mussourie Bypass [ after Jogiwala ], Sahastradhara Rd, Nehru Colony, E C Rd. But avoid GMS Rd, ISBT or centre of town such as Rajpur Rd, Dharampur, Station Rd, Saharanpur Chowk etc. Quite expensive and very crowded.

      I'm going to pare down my PM holdings to approx 20 - 25% of portfolio and invest the proceeds in RE over the next 7 - 8 months. From my POV, RE has already corrected 50%
      Thanks for so much info. I have saved it for later use.

      I think DDN RE is highly underpriced and expect 100-200% return the moment the roads are finished - maybe 2-3 years from now.

      Renting to students is a little labour intensive and needs a big builder kothi or multiple flats. Somehow I can not think of a finance pro doing that kind of investment.

      Better idea might be to start a hotel/spa/naturopathy/meditation/destressing retreat kind of business on the RE purchase - or maybe all 3 combined.

      Check out Naturoville SPa in Haridwar. You can do something like that
      Venky (Please read watch a or before posting)

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by rembrants View Post
        Fee based income was an attraction 3 years back. Since the bubble burst in 2009, the fee based income is seeing major trend reversals.

        Eg: Brokers have seen the volumes dissappear, insurance companies which were ticking triple digit growth rates are seeing double digit decline in new business premium, Investment Banking...far too crowded..infact some promoters have realised how useless IBs are and have started doing deals inhouse rather then appoint a banker.
        Yes but the fixed costs of running insurance and IB are quite less. IB and Insurance is bonus driven unlike opening up branches and keeping employees on fixed salaries with no link to profitability or business growth.

        Look at the cost of sending emails to existing clients about new realty projects with a line "Project approved by ICICI or HDF banks or some other bank". You use existing IT infra to sell more products and if there is a customer then you not only earn fees to arrange the loan but also build a relationship with the builder and maybe a % of the sale price.

        The margins in para banking businesses have declined drastically, partly due to consequences of suffocating regulations, and do not even cover the distribution costs. Old private banks have opened branches by dozens every quarter during the hay days but for newer banks its very difficult to match the distribution networks. In such scenario only public sector banks can compete since they have old and wide network already in place
        Facts say quite the opposite.

        HDFC Bank
        For every 1 bank branch it has around 4 ATMs.
        In the last 11 yrs the number of transaction done in bank branches has come down from 43% to 18%.
        Today 70% of HDFC Banks transactions with customers are done using , ATM or Internet.

        Other income is 30% of net revenue and and 81% of that other income is fees and commissions.

        Compare this with SBI and you see why going behind fees/brokerage/commission is more profitable than just opening up branches and in the process increasing the employee salary expense.

        SBI has around 1.5 ATMs / Branch.

        SBI spends about 29.4% of its net revenue on employee compensation whereas HDFC bank spends 10%.

        SBI has around 24% of net revenue from fees (most of it assured revenue from the Indian govt for handling pension, bonds etc).

        SBI has a very minor presence in stock brokerage as compared to HDFC, Kotak and ICICI.

        It makes sense for banks (whether private or public) to strengthen their balance sheets by concentrating on core banking (ie: lending)
        Core lending by govt owned banks is usually dictated by govt policy/pressure. SBI lending for agri sector went up 28% last years where was lending to retail section went up 10%. Lending to infra went up just 8%.

        HDFC Bank Gross NPA = 2,000 crores (1% of gross advances)
        SBI Gross NPA = 39,800 crores (4.4% of gross advances)
        (Gross NPA in agri sector went up by 71% in one single yr)

        HDFC Bank ROA = 1.77
        SBI ROA = 0.88

        Havent put my money yet in PSB and wont be doing so in the future till policies changes.
        Last edited by herohiralal; July 10 2012, 05:50 PM.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Giving unneccesary and irrelevant statistics does not solve the purpose...we are talking about para banking business here..they have nothing to do with ATMs.

          Insurance is not bonus driven it takes huge amount of upfront capital. It needs hiring and training a lot of people.

          Marketing emails are just for generating leads..it does not mean that the whole business is run on emails. Read my post well, i have written that branches were opened by dozens every month. Such an expansion needs money, why else would they beg for higher FDI limits?

          Whether banking (retail or corporate) is done via branches or online it makes no difference in commission/ fee/ interest rates or margins. The regulator has ensured that.

          People in the Indian Banking system would know a large population, including professionals still prefer interaction with the relationship manager

          SBI is the bank for the Bharat Janta and has wider presence and lower ticket sizes...NPA's are bound to happen. HDFC is the banker to the snobs and extremely opaque..both in products as well as financials.

          SBI has no presence in stock broking because it does not want to bleed like other banks. Sensible.

          Btw...SBI is now a Fortune 500 company....HDFC is not :-)
          Last edited by rembrants; July 10 2012, 06:25 PM.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by rembrants View Post
            Giving unneccesary and irrelevant statistics does not solve the purpose...we are talking about para banking business here..they have nothing to do with ATMs.
            Look at the complete set. Waiting for some concrete data from you other than just words.

            Look at the Gross NPA, RoA, stock price over the last 15 yrs.

            Insurance is not bonus driven it takes huge amount of upfront capital. It needs hiring and training a lot of people.
            Yes it does but depends on how the business is structured. In insurance you sell on the risk to a re insurer and just collect the fees. Insurance companies dont keep all the risk on their books they spread it across to other re insurers.

            Marketing emails are just for generating leads..it does not mean that the whole business is run on emails. Read my post well, i have written that branches were opened by dozens every month. Such an expansion needs money, why else would they beg for higher FDI limits?

            Whether banking (retail or corporate) is done via branches or online it makes no difference in commission/ fee/ interest rates or margins. The regulator has ensured that.

            People in the Indian Banking system would know a large population, including professionals still prefer interaction with the relationship manager
            carrying out transactions over the web/ATM results is massive cost saving for the banks and higher profit. SBI spends a very high amount on employee salaries and believe me interacting with SBI employees is no pleasure

            SBI is the bank for the Bharat Janta and has wider presence and lower ticket sizes...NPA's are bound to happen. HDFC is the banker to the snobs and extremely opaque..both in products as well as financials.
            Well I want to invest in a bank which is careful with its money and has proper risk management. Not someone like SBI which reports massive NPA as soon a new chairman takes over.

            SBI has no presence in stock broking because it does not want to bleed like other banks. Sensible.
            Broking business gives 90%+ return on equity. So dont know where you are getting this data that stock broking has resulted in a loss for banks like ICICI, Kotak and HDFC.

            SBIs investment methodology is the most flawed amongst big Indian banks but again its controlled by the govt so wont expect them to take into consideration minority investors.

            Btw...SBI is now a Fortune 500 company....HDFC is not :-)
            What has that got to do about where to invest your money?
            Last edited by herohiralal; July 10 2012, 07:58 PM.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Originally posted by herohiralal View Post
              Reforms I am looking for are in priority order
              1) Disinvestment in already listed govt backed companies
              2) Free up petrol and diesel and LNG prices
              3) Labour reforms
              4) More banking licenses
              5) Stop food security bill
              6) List BSNL and LIC on stock exchange and divest 30% minimum
              7) Railway reforms
              8) Land reform



              Banks do a lot of businesses apart from pure lending. M&A, Stock brokerage, Mutual Fund, Insurance, Money transfer etc which are dont involve lending in the purest form.
              Looking at your list of reforms it sounds like you want to sell our country to western capitalist. These are not reforms. World is already seeing the outcome of their capitalist economy model which is failing increasingly.

              They are desperate to enter in Indian market as their capitalists need booming market which has self sustaining demand. How come china without opening their market much manage to benefit from global economies?

              If India goes on your lines, then these beggars will suck India till last drop of our blood. We were their slaves for 200 years and you are preparing country for another inning.

              We should:

              1. bring more universities and foreign students
              2. promote research and strengthen patent laws
              3. reduce corruption by stringent anti corruption laws. This will ensure what is spent by govt reach to people.
              4. remove tax breaks and use flat tax structure. Let people buy only what is needed/necessary including house, insurance, investment products. If people still want to buy more RE let them buy but without tax break. If Govt need money let tax break only given to long term govt bonds/infra funds.
              5. remove govt subsidy completely step by step. Till it completely removes, identify efficient ways to target correct beneficiary.
              6. need agricultural reforms in order to sustain growing demand of food.
              7. land reforms - let's not convert agricultural lands for industrial purpose.
              8. conserve natural resources like water, mines, forests etc.
              9. open only sectors to western world which will give technology benefits to us like nuclear energy, health sector etc.
              10. Election reforms

              We can not reverse capitalism but let's adopt only what is best in western world.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by AaplaAbhari79 View Post
                Looking at your list of reforms it sounds like you want to sell our country to western capitalist. These are not reforms. World is already seeing the outcome of their capitalist economy model which is failing increasingly.
                World is seeing the outcome of excess socialism and welfare state and crony capitalism.

                Sorry I don't get the concept of selling the country. Govt owned business need to be subjected to competition (local and global) and the best way to do that it to have then privately owned (whether the investor is local or global should not matter).
                Indians today can buy stock in US so dont understand why someone sitting in US shouldn't be able to but a share of an Indian company?
                Keeping companies under govt control makes them inefficient and subject to govt intervention.

                They are desperate to enter in Indian market as their capitalists need booming market which has self sustaining demand. How come china without opening their market much manage to benefit from global economies?
                Don't know whether foreigners are more desperate to invest in India or Indians more desperate to move to foreign countries?
                China is a communist country so no point comparing it with India.

                If India goes on your lines, then these beggars will suck India till last drop of our blood.
                Sorry not getting you. Are their foreign capitalist investors or beggars? By the same logic has Indian IT sucked the blood out of US or has it made it more competitive and similarly TATA buying Corus or Jaguar made UK go mental and asked it citizens to stop doing business with these companies?

                We were their slaves for 200 years and you are preparing country for another inning.
                And you suppose keeping the country locked up without opening it up to global competition has resulted in massive growth and prosperity for India? We tried it after Independence and have seen what that led us to.

                We should:

                1. bring more universities and foreign students
                2. promote research and strengthen patent laws
                3. reduce corruption by stringent anti corruption laws. This will ensure what is spent by govt reach to people.
                4. remove tax breaks and use flat tax structure. Let people buy only what is needed/necessary including house, insurance, investment products. If people still want to buy more RE let them buy but without tax break. If Govt need money let tax break only given to long term govt bonds/infra funds.
                5. remove govt subsidy completely step by step. Till it completely removes, identify efficient ways to target correct beneficiary.
                6. need agricultural reforms in order to sustain growing demand of food.
                Agree.

                7. land reforms - let's not convert agricultural lands for industrial purpose.
                You don't need so much land devoted to agriculture to feed 100+ crore people. What you need is proper industrial scale farming which will free up land for housing and industry or any other profitable use.


                9. open only sectors to western world which will give technology benefits to us like nuclear energy, health sector etc.
                Global trade is a 2 way street. if you want someone to invest in areas that India needs then in return India will have to open up sectors where others want to invest.


                We can not reverse capitalism but let's adopt only what is best in western world.
                It it will be a big mistake to reverse capitalism cause the other options socialism and communism are not at all worth even the slightest effort.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Sanjana . like you posts a lot

                  a minor correction here, if you made 50% on gold and RE hasnt changed since, then the "discount" on RE you are getting is 33%, not 50%.

                  eg 100 became 150 => 150 RE you are getting for 100. discount price 100/150= 66% .. 33% discount


                  Tax plays spoiler too. Eg, if you are yankee doodle from umeriKKa .. after 28% flat tax on PM ..
                  discount price 100/136 = 72% ... 28% discount


                  How much RE price has moved within this period I dont know.



                  Originally posted by SanjanaSingh View Post
                  Venky,

                  Some preliminary findings :

                  1] Pune is overpriced, not many independent kothis available, architecture / quality of construction is lousy. The reason I was thinking of buying a kothi in Pune is that in the past year, I've made 50% returns on gold, and I can invest that corpus in RE, and lease it out to some Company. Corporate lease only, not individual.
                  Considering the ROC on gold, I'm already buying RE at 50% discount !


                  I'm going to pare down my PM holdings to approx 20 - 25% of portfolio and invest the proceeds in RE over the next 7 - 8 months. From my POV, RE has already corrected 50%

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Economy & Realty at a glance June 2012

                    With the GDP at a 9 year low, historic depreciation in Indian rupee, rising inflation, fuel prices, here's a report by Knight Frank India. Worth having a look.


                    Economy & Realty at a glance June 2012 - Knight Frank India Research

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by herohiralal View Post
                      World is seeing the outcome of excess socialism and welfare state and crony capitalism.

                      True. Hence we need best of every world.

                      Sorry I don't get the concept of selling the country. Govt owned business need to be subjected to competition (local and global) and the best way to do that it to have then privately owned (whether the investor is local or global should not matter).

                      Once you give entry to private players within govt it will be a mess. Rather if you want to create competition allow private players to compete against govt body. There is need of socialism in govt to some extent since it need to address poor people which private player cant. Take example of SBI it has mandate to go in rural but will ICICI/HDFC go in rural without seeing multi million dollar opportunity? These private players competition has started transformation within SBI which are slow but promising to create good option in future with good service. Let govt companies be more performance oriented rather than taking drastic step of privatisation as if there is no other solution.

                      Check in Gujrat/Bihar, govt owned companies are doing good work. Socialism doesn't necessarily means only freebies.

                      You want private players to manage basic necessities like water only because Govt can't fulfill demand.(as you mention in some of the posts) Is that the only solution left? The private players irrespective of internal or external will only try to reap extra ordinary profit leaving people no choices but to pay what is demanded. If govt try to intervene by price control it will lead to malpractices to gain whatever it desires.

                      The more you sell govt stake it will have less control and only profitability will drive. This is what I'm calling as selling country which will mean handing powers to private sector.


                      Indians today can buy stock in US so dont understand why someone sitting in US shouldn't be able to but a share of an Indian company?
                      Keeping companies under govt control makes them inefficient and subject to govt intervention.

                      How many common people go and buy stock in other countries forget about US as agains how many of them come here by means of hedge/FII/FDI funds to reap profit? It is not equal.

                      Don't know whether foreigners are more desperate to invest in India or Indians more desperate to move to foreign countries?
                      China is a communist country so no point comparing it with India.

                      Let it be communist or socialist or capitalist it knows how to get gain out of all this which India can't. They are most beneficiaries of open economy while giving no access to their markets then how they survive on 2 way street?
                      If they have interest/opportunities seen in our country they will anyway come don't need to give red carpet treatment.


                      Sorry not getting you. Are their foreign capitalist investors or beggars? By the same logic has Indian IT sucked the blood out of US or has it made it more competitive and similarly TATA buying Corus or Jaguar made UK go mental and asked it citizens to stop doing business with these companies?

                      Yes. If IT has benefited from open policy we have made equal sacrifices as well. We have our financial markets open with no tax (Mauritius treaty) to reap them profit. Look at different types of cars selling in our country. See who are top manufacturer/sellers in India. See different western fashion brands making business in india.

                      So they are not doing any favor on us by giving IT business. As I said earlier, let them bring technological products like cars, electronics, etc. Let our research/innovation hubs compete with them. The problem is with extreme privatisation.

                      They are stopping our IT to flourish as they have realised importance of jobs and time has come for us to look at our own pains and not others. See what pains TATA has selling JLR in China, do they face same issue exporting their manufactured goods to india?

                      Again we need to choose best for us.


                      And you suppose keeping the country locked up without opening it up to global competition has resulted in massive growth and prosperity for India? We tried it after Independence and have seen what that led us to.

                      Right globalization is required and we can't remain isolated but need balance in that. The opening finance sector (read bank licenses, tax free investments, dis-investments), natural resources to these capitalist investors will only create damage for us.

                      Agree.


                      You don't need so much land devoted to agriculture to feed 100+ crore people. What you need is proper industrial scale farming which will free up land for housing and industry or any other profitable use.


                      Agree that we don't need all land but we can selectively use lands for industries which are not suitable for farming.
                      Let us export excess anyway commodities will become scarce in rest of the world if industries grows with this speed. The problem today is increasing percentage of urbanisation leading no agricultural growth in our country and neither we are super power in manufacturing like China. People are owning 2/3 RE assets and some politicos holds thousands of acre just for creating never ending wealth. There are many examples where people are forced to quit farming to acquire their land. Many of our forests are ruined for setting up holdiay home schemes or schemes like Lavassa. Who get benefited from this common people or country?



                      Global trade is a 2 way street. if you want someone to invest in areas that India needs then in return India will have to open up sectors where others want to invest.




                      It it will be a big mistake to reverse capitalism cause the other options socialism and communism are not at all worth even the slightest effort.
                      There are pros and cons of every system but let's implement what is best for us and not for others even if that means they have to retaliate by equal reaction. I don't believe anyone will be able to ignore India after 5 years as market and whatever term you have they will come for business.

                      Comment

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