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Thursday, November 18, 2010

The fight between my mind and heart…

I have been writing after a long time… Good to write after intermittent timeframe then on a regular basis without any significant updates. :-)

I wanted to write about my Diwali vacations in my home town, my learning from this visit and how Ireland’s economy debacle is quite similar to a potential brewing problem within India. Strange, but true… read this further.

I was spending a full week in the town almost after 3 years so got an opportunity and lots of free time to meet many friends, relatives, everyone… My hometown is famous for all tasty Indian snacks and everyone there gives a nice treat to someone who is in the town. They won’t take you to any tourist place/ museum/ historical places etc. but to typical Indian food bazaars/ food-malls during such visits. But this time a different experience was waiting for me.

Everyone I met there, and with no exception, has not talked about me/my well being as much as they talked about the hot property in and around the city. They have talked about how the rates have gone up in last 3 years, which are the hot places to visit. In fact, it was to this extent that I made visits to at least 3 such ‘hot property’ destinations in the city which have already gone up by 4-5 times in last 3 years, and some cases more than that, and still people were talking about more appreciations for such locations. It was not limited to this extent but when I was using public transport to commute/ while I was at a paan-shop, I found that people there also were talking about property/ land/ flat etc… This was craziness…

The city is a trading place and has two main industrial belts near the city where all the leading companies are present. It is also fast emerging as an education hub with the presence of IIT, IIM and hundreds of colleges which are offering engineering and management qualification to anyone who is willing to grab that. The result is a big boom in the services associated with such market. The people are very industries and have captured this education market opportunity with open hands and now the city has many hostels (from 5-start facilities to road side place)/restaurants/ food-mess etc running in and around the city.

When I met people in the city, I found that they are busy in acquiring plots, vacant land, houses, flats everything more than they need or they have the capacity to hold or buy. The problem is huge appreciation in prices and people’s expectations for further crazy appreciation in a city which is limited to education hub and 2 industrial belts.

But is this the story confined to my home town only? Is it not prevalent across the India – almost the same story only the situations are marginally changed here & there. You visit anywhere in the country, a small city to a metro, it is the same. I have taken the example of my home town since I wanted to write about the craziness for property in India for sometime but wanted to avoid getting myself biased. After visiting my home town, I have got this confirmation that we are now brewing the problem.

It gives me a jittery feeling, especially when I read that the problems in Ireland (a small European country which is heading for bankruptcy) is due to such property bubble. We have seen earlier how US has got entangled with sub prime. We are also hearing the same property bubble getting built up in China. When I quote such examples, people have easy way of telling me that US was different, India is different and Indian market is more demand driven and not investor driven, the banks are not landing easy money to people etc. But if that’s not the case then how come people are acquiring so fast and so easily esp. more than what they need? If it bursts then what will happen? US is saved because they can afford such mistakes, possibly Ireland can afford with the help of European Union but who will come for our rescue? The answer is simple… no one. I see this as a potential problem but many may differ. My heart says that it should not lead to a problem but my mind disagrees. Let’s see who wins. Till then goodbye.

As always you are most welcome to share your thoughts/opinions/criticism/praise etc…:-)


Anonymous said...

There seemed to be some editing errors like 'then' instead of 'than' in the first para and later somewhere perhaps "people are very industries" which should be actually 'industrious'. Some other instances as well. Overall, I feel in India property is considered a relatively safe investment. People in general prefer real investments to financial investments which cannot be felt/seen/etc. Also, there is the problem of growing population while supply of land is constant. The only saving grace are the people moving out of India due to work/migration/etc, else we can imagine how short the supply of 'real estate' would be! Ofcourse these same people then repatriate funds to create the demand for real estate too! My guess is .. in the Indian context, the bubble will take a long time to burst, if at all there is a bubble. -Rajesh

Niteen S Dharmawat said...

Thank you Rajesh (picked up your name from signature & it's anonymous so I do not know who the Rajesh is :-)

Your argument is valid that people prefer real v/s virtual investment in India. But it's going beyond the limits and could be leading to problems. If it's just limited to my views and not a real problem, I would be very glad...and apology for editing errors, I am at customer site… getting very less time in finalizing the content, bear with me.

Aditya Vasistha said...

Bhai, don't tell ! I just bought another one here :)

On a serious note, I completely agree with your thoughts dude. In fact, people are buying the property which is actually out of their pockets. Its crazy to talk about buying a 2BHK in 2.75 Cr or like.

Let me compliment you as well as the article is very well written...Keep it up !


Niteen S Dharmawat said...

Thank you Aditya for your comments. I agree with your observation that property prices are fast becoming unaffordable for many in India. When I see the prices in developed world and compare it with ours, I find that we are becoming costlier than them as well.

chhaya said...

very true to current indian scenerio.......people are investing in real assets like anything & thats the only reason of price rise.
Instead of investing so much in real assets if we educated people invest even 25% of our portfolio in industrial development/growth if will be a big return to us , to our country & next generation....
think seriously on it & invest wisely & not to take part in any bull race to buy real assets.



Jinesh said...

Niteen, Agree completely. It seems that in a city like Mumbai and Delhi, all employees (including office boys) have become crore patis due to property appreciation. If this is the case, then it is only a matter of time, we shall not have anyone working... simply sell the property in Mumbai and go back to hometown with few crores in hand.

It is only a matter of time, that this could burst. This is confirmed by the action taken by RBI... if the banks are forced to remove the teaser loan rates, then the bubble burst will expedite.

Ketan Thackar said...

Dear Niteen,

Nice article. You are an extremely good writer. Even i agree to your point. The same feeling i am getting about here in Ahmedabad. People here are literally crazy and wants to make a quick buck.

People here in Ahmedabad have set aside their passion for stocks and have shifted to real estate, property market etc. Here, these guys are taking 7-10 times exposure and buying a plot and on a small appreciation are making good amount of money. I believe this is riskier than the futures market, where atleast people can exit the position at will. What would happen if there is a sharp sell-off in the property market,i,e the number of sellers more than buyers. This would ultimately happen and there is a clear writing on the wall.

It is just a matter of time.....



Anonymous said...

Niteen, I completely agree with your thoughts and fear. I have been monitoring the prices since last 6 years but the prices just seem to be heading for moon. On the second thoughts though, did anyone notice a 15% to 20% price cuts for property in Pune last year due to economic slow down in The US?

Bala Dengale said...

Hi Nitin,

Nice Article........

Don't know what will happen...

Hopes your heart is correct....I am also in the big crowd of investor.......so hoping for the best.

Bala Dengale said...

Hi Nitin,

Nice Article........

Don't know what will happen....

But hopes that your heart is correct, because I am also in the big crowd of investors....

so let's hope for goood...

Sai Prasad said...

Good to see here again after a long pause..Really good to see the angle which all we ignore but the fact we are investing huge amount in property.But in Indian scenario its a general trend might be some difference in tier a,b and c towns but practices are the same .
Great Job my Philosopher ...


Niteen S Dharmawat said...

Chhaya, Jinesh, Ketan, Bala, Sai and 'Anonymous' ;-),

Thank you all for sharing your thoughts and views. It further highlights that the property market is going towards roof.

Keep sharing. Sorry for the delay on my part in responding to your veiws...


Raj Jagtap said...

Pune used to be 6km X 6 km city some years back and now it has become 32km X 32 km city with lots of construction activities going on.. Dange Chowk area in chinchwad where people openly defacate, the properties rate which had dropped to Rs 1500 per sqft in March 2009 (Sollana builders) has now climbed to Rs 4000 (Scheme opposite to solana i.e Reflections)!! and people are still buying..looks crazy to me..
Another job layoff or employment freeze and we will see the price correction

Raj Jagtap said...

Does this sound familar ?? This is comment of Krugman on Ireland...
The Irish story began with a genuine economic miracle. But eventually this gave way to a speculative frenzy driven by runaway banks and real estate developers, all in a cozy relationship with leading politicians. The frenzy was financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.

This can be very well applied to India as well.. the market is up on foreign money and real estate companies have borrowed a lot through QIP route.. Let see what happens !!

Anonymous said...

Fantastic article ,Niteen.
My observations are:
1) Property is bought in India more on an emotional basis rather than on a rational basis. We buy GOLD and PROPERTY not for immediate gains (though there can be a fair amount of speculation) but as a means to leave a legacy for generations. So rather than spending on consumerism , at least 40% percent of us invest in property. Hence, the question of bubble bursting seems a bit far-reaching.

2) Buying property is still not an individual decision; it is still backed by parents and in-laws what-so-ever the irrationality in markets is there.Hence, I still feel it is a calculated risk that people take when I compare this to a STOCK MARKET where it is more of an individual decision.

3) The bubble lies for people who have taken an exposure more than their limits. They will not be able to survive any crisis if the property rates slashes.The others will be locked in with whatever prices they get; hoping for prices to eventually rise.


Niteen S Dharmawat said...

Hi Raj,

Here, I remember Graham's wordings: "sooner or later, all bull markets (the current property boom is in a sense a bull market only) must end badly" and the famous warning: “Those who do not remember the past are condemned to repeat it.”


Nilesh G. said...

Hi Niteen,

Finally I got time to read the article. It is nicely written and well convey your feelings.
See I was in US and owning a house when housing market crashed over there. At the same time my uncle was there in Ireland and he not only witnessed but also fighting with it till date.
This is what happened with US – in 2006 some economist said that there is no issues with economy of US, there are no TAX we are expecting we have great housing market and we have lot of assets in the country. But at the same time, in the same interview another economist was telling completely reverse thing – he was Peter Schiff. According to Peter in 2006 itself that recession is on the door and it will going to hit the market any time. It happened in 2008.
I bought a house and luckily I was able to sell it on same price, however in my area (Chicago Suburbs) there was nothing much in difference as houses were not of that hipped prices. But in VA and CA and many other states house prices were on top because of no reason. It fell down, one of my friend’s house of 365K went down to 225K and this is nothing as compare to CA house prices.
In Ireland it was more difficult – houses were at top high but after 2008 there was no buyer – whatever price you want to put in. My uncle is moved to Canada now but still having mortgage of 2 houses in Ireland which he is not able to sell and even rental is also very difficult there.
Now about India – I came back here on 9/9/9 it’s been more than a year now and I am seeing the same condition here. Moreover India is going to get hit very badly the way it is progressing. There is no production out here, we are just outnumbering other countries otherwise if you see there is nothing which we produce and it signifies something.
We are looked as big market because of our population but see this 100 people are working and production is equivalent to say 10 people in developed countries. Now if we try to distribute this 10 into 100, the distribution is also not even – first 5 will take most of it and after that distributed and 50 out of 100 will be in poor category. Unless we increase productivity we will see very adverse effect in our economical and social front.
How do we justify prices of anything in our country – there is no way it should be. If we keep on doing this, the wealth developed by this will be taken by most of the MNCs – its matter of few years.
I will write more about your question of heart and mind.