MYTH NUMBER ONE: PRICE DO NOT AFFECT FUNDAMENTALS...

In real estate, the rental yields have gone from 8 percent just 5 years back to almost nothing now. It’s like a PE of a stock, or a barometer of it under or over valuation... If demand is what’s behind this current ridiculous price rise then rental should have increased in the same proportion as price. The difference in rental income to EMI on mortgage is well over 50 percent and its increasing with rising interest rates.
Interest scenario is only going get much hawkish in coming days with Indian already having a 3-4 percent negative real interest rate. With inflation looking to skyrocket in coming months, we could we well see RBI tightening the rates by 3-4 % points. Much like what Paul Volker did in early eighties in USA...
With fiscal situation looking dismal and also the trade gap narrowing India needs funds in greater quantities to keep it running and much more to grow(to fund the needed investment in infrastructure)..There is looming threat that India could face downgrade in sovereign rating if it doesn’t not undertake reforms on its fiscal side (which looks remote with the current govt.) Rupee is already under pressure and expected to be so in coming days (till the real yields turn positive) and funding becoming dearer in global markets, India would find it difficult to attract funds at a competitive rate. Government is looking to crowd out domestic funds with its fiscal profligacy.
With high rates and low availability of funds, real estate is bound to feel the heat. Indian real estate being an unorganized market has been a boon to developers all this while. Information flows are not efficient and that was fully being utilized by the developers and investors to get a greater bang on their buck. But, when things turn (as it is now), it would be working in the same way against them. Hence, trying to gauge the intensity of bear market in real estate from developed markets would be fallacious. We, therefore could be staring at a meaningful mean reversion in real estate prices before this gets over. Depending on location of property the decline would be less or more.....

MORE ON IT IN COMING DAYS...
BUT ONE MUST UNDERSTAND HOW A REFLEXIVE PROCESS WORKS TO UNDERSTAND HOW REAL ESTATE AND FOR THAT MATTER ANY ASSET CLASS FUNCTIONS...
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