Re : Indian real estate – boom or a bubble?

[ALICIA21]

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Indian real estate – boom or a bubble?

Property prices in India are rising fast, and as the tech boom spreads across the country, and more Indians buy homes,with the growing economy at the rate faster than 8% a year, real estate is attracting more investors, even from overseas

Though India is one of the major countries in Asia with an improving market there are concerns about an asset-price bubble raising questions as to whether the speculation of the past year and a half, which has driven land prices up by 30% to 100% and real estate stocks up as much as 2,000%, may be coming to an end.

Its the boom or bubble question in Indian real estate that has been a cause of worry lately.

I really enjoyed this. where can I find more info about this.

[wiseman]

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Now I'm retiring

The real estate segment from Americas to Europe is going under. The real estate prices in USA are down 18% from last year. In some key markets where the home prices went up just like India (upward of 40%/year) such as Las Vegas, San Francisco, Miami, the prices have actually gone down by 30%+. The trend is still pointing downward even when the mortgage rates are at 4.5%. Comparing these, the rates in India are still considerably higher. Spain has worst real estate bubble in Europe and its property prices still did not rise as fast as India’s. Spanish real estate is expected to start stabilizing (not recovering) in 12 to 18 months.

...on few others. The only people who should be buying right now are those who can justify rent vs. buy equation and have guarantee of source of income. If you do not understand that equation, read up on it.

Real Estate is an investment of life time, don’t fall for the hype.

Hi Nick_alan,

Just a small correction.

The most used index for home price correction is the Case-Schiller Index. There are 2, the 10-City and the 20-City index.

Latest on that: 20-City index is down 23% from peak. The worst state is California where the average decline in home prices across the entire state is 52%!!! In some counties the average decline has gone upto 60%+. So, it is already the most severe decline ever in the History of the US.

And with others posting such long and informative posts, I'm retiring !

cheers

[jemas]

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Yes really now days the real estate development companies playing a bigger role in an Indian realty market. They together with the architects, engineers have been successful in bringing about a revolutionary change in the real estate market in India.

[sethugm]

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revolutionary change

Yes really now days the real estate development companies playing a bigger role in an Indian realty market. They together with the architects, engineers have been successful in bringing about a revolutionary change in the real estate market in India.

You partially right.

At the same time RE companies together with Engineers and Brokers , have rigged the prices to the level that common man can NOT afford . Also they have gone into big expansion plans and only the continued sales will save them .

Will they sell the houses at this high prices and meet the recurring the payouts ?

Cheers

[nick_alan_76]

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Don't retire Wiseman...

At the same time RE companies together with Engineers and Brokers , have rigged the prices to the level that common man can NOT afford .

Cheers

Well said sethugm. The per capita GDP in India is less than $1000 (this is nominal GDP and not in PPP). That is less than Rs. 40,000/person. How many common people in India can afford to buy the houses at such inflated prices. RE companies/Brokers etc went overboard to build a lot of homes. This excess supply of homes is going to come back to bite them in their behind.

Pricing out the common man from the boom will be a curse for India... it leads to rampant corruption, crime and social unrest (if you think we do not have them already)

Here is another link that just goes on to prove that lots of loan defaults are coming and mess has just began.
http://economictimes.indiatimes.com/...ow/3939910.cms

Wiseman: Please rethink about retiring. I think there are lot of people on this forum still in denial. We need all resources we can to cool down the madness.

[wiseman]

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Just kidding!

Well said sethugm. The per capita GDP in India is less than $1000 (this is nominal GDP and not in PPP). That is less than Rs. 40,000/person. How many common people in India can afford to buy the houses at such inflated prices. RE companies/Brokers etc went overboard to build a lot of homes. This excess supply of homes is going to come back to bite them in their behind.

Pricing out the common man from the boom will be a curse for India... it leads to rampant corruption, crime and social unrest (if you think we do not have them already)

Here is another link that just goes on to prove that lots of loan defaults are coming and mess has just began.
http://economictimes.indiatimes.com/...ow/3939910.cms

Wiseman: Please rethink about retiring. I think there are lot of people on this forum still in denial. We need all resources we can to cool down the madness.

Hi Alan,

Just pulling leg. With Natraj around you do need adequate firepower to attain balance of power, right?

Anyways 2 things to support your figures. I just saw a REO - for the uninitiated, this means Real Estate Owned another way of saying that the bank now owns it and is eager to dump - that was originally sold in 2007 for $930,000. This was on 2 acres in a prime area in California and has a 4400 SFt house with all the bells and whistles; replete with Granite Tops, etc.

Guess what price its going at now and is still in the market for 7 months. The asking price is $540,000.

The point I'm trying to make is this. Even at the height of the boom a luxury house in a prime area was available with building and land in the US of A for only Rs.535 per SFt. Today, its going begging at Rs.310 per SFt.

And in a country with a per capita income only a fraction of the USA, you have land going at Rs 10000 per SFt (32 times). Hope everyone thinking of buying now - in the hope of finding a greater fool down the road - gets this into their heads properly!!!

Regarding the article linked
I had already made several mentions before that it only takes a 15% - 20% drop in price to have a majority of people with home loans to go underwater / upside down - meaning loan outstanding is > value of home. If they also simultaneously have income drop and are not able to meet payments, poof, home as well as down payment is gone (which, in most cases is entire life-savings). This is an overhang which could be catastrophic in the next few months as job losses hit seriously.

Just heard a senior MNC IT company friend tell me that his main job now-a-days is to fire people and this is only the first round. Company has 10000 currently in India and first round is expectted to take out 10%!!!

Did you see the Satyam Catastrophe? WOW!!!

This too could see a drop in outsourcing - Obama and gang will only use this to blow-up the evils of outsourcing to India and make their case stronger! Brace yourselves for serious job losses and do not take any debt of any kind next year or two!!!

cheers

[nick_alan_76]

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Yes I saw what happened to Satyam. World Bank has already barred the company for eight years from bidding for contracts. After this fiasco other clients will certainly be moving their business elsewhere. DSP Merrill has already washed their hands off of Satyam. Credit Suisse suspended its coverage of Satyam. But more is yet to come. The best case scenario is that it will be acquired by a larger competitor and would retain at least 60% of the work force. See, it's already relevant to my previous post about 1st type of potential buyers.

This fiasco will have adverse impact on all Indian IT/BPO companies as they will have to prove that they are not in the same boat. One more fiasco and have a close case. As you already stated, questions are already being raised on the overall Indian accounting standards. This will affect the amount of new business Desi companies get. This is really a sad day for India and I am not happy to write about it. But it’s just a last ditch effort to warn as many people as possible.

Now as you stated, even a drop of 20%-25% in RE prices will start the slide. Now let me analyze how this will start. Satyam and other IT/BPO companies already had expansion plans in tier 2 cities. This more than doubled the RE prices in those cities overnight. These companies will be moving into operations mode and may eventually scrap those plans for tier 2 cities if the RE drops in tier 1 cities itself. This has a cumulative effect of RE drop in tier 2 cities itself. It’s a self sustaining cycle.
This is first downturn in India which will touch lives of so many ordinary citizens. Remember the Harshad Mehta scandal and 1990’s drop in RE prices in Mumbai. Those will look like wet dreams as compared to what we have on the horizon.

Come to think about it… some more people need to buy some plots in the tier 2 cities so I can offload some of my real estate investments as quickly as possible. I wouldn’t bet my lunch money on it though.

[arin_12]

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More way to come man !!! Satyam is just start of the Beginning...

[badrig]

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wiseman the prophet

dear wiseman ,
all your words are coming true. Satyam is just a beginning of the end of the long bull ride we had so far. more scams will be unearthed. satyam employees who have taken housing loan will default. which company next?
may be infosys who knows. the prophet wiseman is requested to continue his good work to society. pl dont retire

[puneDude]

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The beginning of the end of the so-called BOOM!

World financial sector collapse: NRIs cannot buy properties as fast as earlier.

Mumbai blasts, Satyam collapse: more layoffs and uncertainity, local IT guys hold back...

Get ready for the 'Foreclosure Crisis' in India....