Well, finally there could be some good news in store for potential investors in Real Estate. Seems the rapidly deteriorating macro economic picture has finally started to take a toll on what has been traditionally preceived as a safe investment avenue. Auctions for plots at the prestigious Bandra Kurla Complex held by the Mumbai Metropolitan Region Development Authority (MMRDA) have seen the reserve price falling. This development is really significant as the Bandra Kurla Complex has been positioned as the hub of commercial activity in Mumbai,having overtaken the traditional business district in South Mumbai, namely Nariman Point in terms of business importance.
This could augur the start of a much anticipated or from the view point of a potential investor a "much needed" correction in the Mumbai real estate market. The only word that can be used to describe existing rates is stratospheric, which has put housing out of the reach of most of the middle class. Buying interest which has been on the wane recently due to rising interest rates, is likely to further take a hit as more supplies hit the market over the next 9 - 12 months. A correction in Mumbai could very well herald a correction across the whole Indian market. One look at the way real estate stocks have performed over the past 3 months or so suggests the stock markets are pointing to a significant slowdown in earnings for these companies. Only time will tell how big the correction will be, the only thing potential investors can do until then is wait and watch, hoping their dream home becomes a little cheaper to acquire.
Thursday, July 17, 2008
Thursday, July 10, 2008
Real Estate - Whats the real deal?
Real Estate, the word used often used casually in conversations has developed new connotations. After sharp price rises over the past few years, it would seem more appropriate to use words like “unreal” or “surreal” to describe the market. Saying prices have gone through the roof wouldn’t be an understatement; the sky seems to be the limit, quite literally!! The rapid rise in land rates has made spawned a whole new class of multi millionaires. The flip side of the coin is, owning real estate has become a herculean task, especially for the burgeoning middle class in India.
An analysis behind the sharp surge in the Real Estate market suggests apart from demand and supply issues it is a fear psychosis about rising rates which has supported prices. True, the availability of land in mega cities like Mumbai has remained more or less static whilst demand has risen exponentially. Enormous wealth creation has seen a jump in the incomes and hence spending capacities of people. Apart from the availability of wealth, it is a fear of rising rates in the minds of people that has lent support to prices. Though there are signs of a slowdown, a “correction” hasn’t been witnessed in the recent past.
Things looked hunky dory for the market about 3-6 months ago, apparently things have soured since then. It would be difficult to ignore the macro economic scenario we are in at present. Rising energy costs, galloping inflation and interest rates heading up north. Rising interest rates seem to have taken sheen off the market, as it has made servicing loans more expensive. Fresh loan issuances have also been adversely impacted.
Assuming things are likely to keep going up is naïve to say the least. All asset classes are vulnerable to corrections, even the so called “safe assets”. An example which can be cited is the US housing market; the collapse of the sub prime mortgage market had ripple effects on the global economy. Investments in this market saw some of the world’s biggest banks writing off US$ 400 billion, apparently the crisis hasn’t ended. A crisis of this magnitude doesn’t look likely in India given the vastly different structure of the Indian market.
It wouldn’t be surprising to see a correction in the Indian real estate market, a long anticipated correction at that. Will the investors waiting on the sidelines enter in case of a correction? Logic seems to suggest “yes”, experience or wisdom suggests quite the contrary. An example which can be illustrated here is the Indian stock market, investors were comfortable buying stocks when the Index was trading at 22–23 times forward earnings, now when valuations are around 12-13 times its apparently doomsday, there’s an all pervasive atmosphere of fear.
Well, to cut a long story short it would be good to see a correction in the real estate market as it would throw up interesting investment opportunities. Is a shakeout imminent? I tried gazing into a crystal ball and coming up wit an answer. Unfortunately all I could see was a hazy and foggy picture. Hardly a surprise, that even crystal balls would seem to be of little help when trying to gauge the sentiment of hordes of people who still nurture dreams of owing small pieces of the pie known as the Real Estate market.
An analysis behind the sharp surge in the Real Estate market suggests apart from demand and supply issues it is a fear psychosis about rising rates which has supported prices. True, the availability of land in mega cities like Mumbai has remained more or less static whilst demand has risen exponentially. Enormous wealth creation has seen a jump in the incomes and hence spending capacities of people. Apart from the availability of wealth, it is a fear of rising rates in the minds of people that has lent support to prices. Though there are signs of a slowdown, a “correction” hasn’t been witnessed in the recent past.
Things looked hunky dory for the market about 3-6 months ago, apparently things have soured since then. It would be difficult to ignore the macro economic scenario we are in at present. Rising energy costs, galloping inflation and interest rates heading up north. Rising interest rates seem to have taken sheen off the market, as it has made servicing loans more expensive. Fresh loan issuances have also been adversely impacted.
Assuming things are likely to keep going up is naïve to say the least. All asset classes are vulnerable to corrections, even the so called “safe assets”. An example which can be cited is the US housing market; the collapse of the sub prime mortgage market had ripple effects on the global economy. Investments in this market saw some of the world’s biggest banks writing off US$ 400 billion, apparently the crisis hasn’t ended. A crisis of this magnitude doesn’t look likely in India given the vastly different structure of the Indian market.
It wouldn’t be surprising to see a correction in the Indian real estate market, a long anticipated correction at that. Will the investors waiting on the sidelines enter in case of a correction? Logic seems to suggest “yes”, experience or wisdom suggests quite the contrary. An example which can be illustrated here is the Indian stock market, investors were comfortable buying stocks when the Index was trading at 22–23 times forward earnings, now when valuations are around 12-13 times its apparently doomsday, there’s an all pervasive atmosphere of fear.
Well, to cut a long story short it would be good to see a correction in the real estate market as it would throw up interesting investment opportunities. Is a shakeout imminent? I tried gazing into a crystal ball and coming up wit an answer. Unfortunately all I could see was a hazy and foggy picture. Hardly a surprise, that even crystal balls would seem to be of little help when trying to gauge the sentiment of hordes of people who still nurture dreams of owing small pieces of the pie known as the Real Estate market.
Friday, July 4, 2008
Euro 2008 - The heralding of a new Era??
Euro 2008 is now behind us, a real pity for soccer fans like me cos watta tournament it was. The Spanish armada vanquished the reliable Germans thus getting rid of the tag of perennial underachievers. The quality on display was quite stunning, no team portrayed it better than the Dutch who virtually painted the tournament orange until they ran into the Russians.
The biggest disappointment were the Czechs especially considering the way they played in the qualifiers. France were not far behind, but with their talisman Zinedine Zidane gone the creative talent seemed to be missing in midfield. The seemingly impregnable Italian fortress was conquered, though it needed a penalty shoot out to seal the deal.
Without a doubt Spain were a class apart as they played attacking one touch football. The tournament saw the rise of new stars, Spain's David Villa and Fernando Torres taking the cake while German Bastian Schweinstiger enhanced his reputation a great deal. Inevitably, Spain head FIFA's world ranking which were issued post Euro 2008, the Germans and the Dutch too made signifcant gains in terms of places.
Too bad the tourney ended so quickly, but for us football fans there's always some action on offer. The qualifiers for the World Cup 2010 and the commencement of the national leagues in Europe should provide some real thrilling moments ahead.
The biggest disappointment were the Czechs especially considering the way they played in the qualifiers. France were not far behind, but with their talisman Zinedine Zidane gone the creative talent seemed to be missing in midfield. The seemingly impregnable Italian fortress was conquered, though it needed a penalty shoot out to seal the deal.
Without a doubt Spain were a class apart as they played attacking one touch football. The tournament saw the rise of new stars, Spain's David Villa and Fernando Torres taking the cake while German Bastian Schweinstiger enhanced his reputation a great deal. Inevitably, Spain head FIFA's world ranking which were issued post Euro 2008, the Germans and the Dutch too made signifcant gains in terms of places.
Too bad the tourney ended so quickly, but for us football fans there's always some action on offer. The qualifiers for the World Cup 2010 and the commencement of the national leagues in Europe should provide some real thrilling moments ahead.
How long will it be before the clouds clear?
This is a question upper most in every investor's mind as the global financial markets witness a tumultous ride. The problems which began with the US housing market seemingly have spread to other asset classes and countries. Plunging equity markets, commodities hitting the roof, weakening currencies and high inflation have all impacted investor sentiment adversely.Though risk aversion witnessed in the early part of the year has subsided, the overwhelming emotion which still rules markets is fear. The aggressive approach adopted by the Federal Reserve to prevent the US economy from slowing drastically has seen the Dollar plunging to lifetime lows against other currencies most notably the Euro. Clearly the problem of economic growth wasnt restricted to the US alone, it has become a global phenomenon.
The Emerging markets were hit the hardest as they were the biggest beneficiaries of fund inflows. India and China are two prime examples, the equity markets in both countries have seen sharp corrections after having seen a tremendous rally over the past couple of years. The Latin American economies have withstood the bearish sentiment primarily owing to the rally in commodities. Countries like Brazil, Argentina, Mexico, Peru, Chile are exporters of several commodities. The Brazilian index has hit new lifetime highs, most currencies in the region are strengthening overall the sentiment seems extremely gung ho. However a pause in the commodities rally has the potential of seeing growth in the Latam economies slowing down significantly. The Euro zone also seems to be grappling with galloping inflation at present, recent releases of economic data have pointed to signs of a slowdown in several member countries of the EU.A sustained spell of economic weakness could be around the corner.
Some developments worth a mention include
-The world's biggest banks writing down $ 400 billion-Three of the largest central banks namely the Federal Reserve, the European Central Bank and the Bank of England injecting huge amounts of cash into the banking system
-The Federal Reserve opening its discount window to Investment banks to ensure availability of funds,an unprecedented first.
Given all these signs, the situation does indeed look alarming. Doomsday theorists have been having a field day, but there's light at the end of every tunnel. Its the journey to the end of the tunnel which can be really painful and needs loads of patience. Investors should look at the present picture in the bigger scheme of things and remember several markets are witnessing "corrections" after exponential spells of growth. Investors who thought the markets were an easy place to make money have been taught a very costly lesson. The problems being witnessed in the global markets are likely to continue in the near term, particularly if problems with mononline insurers intensify. A bailout of two of the largest bond insurers by a consortium of banks pointed to problems in the insurance industry. Clearly the problems have not disappeared and could resurface.
Unfortunately the dark clouds over the financial markets are unlikely to dissipate in the near term, if getting the direction right in markets is difficult, timing the markets is almost impossible. Volatility is likely to remain high, staying on the sidelines and waiting for clearer skies would be the best bet in such times. As the old saying goes, a bird in the hand is worth two in the bush!!
The Emerging markets were hit the hardest as they were the biggest beneficiaries of fund inflows. India and China are two prime examples, the equity markets in both countries have seen sharp corrections after having seen a tremendous rally over the past couple of years. The Latin American economies have withstood the bearish sentiment primarily owing to the rally in commodities. Countries like Brazil, Argentina, Mexico, Peru, Chile are exporters of several commodities. The Brazilian index has hit new lifetime highs, most currencies in the region are strengthening overall the sentiment seems extremely gung ho. However a pause in the commodities rally has the potential of seeing growth in the Latam economies slowing down significantly. The Euro zone also seems to be grappling with galloping inflation at present, recent releases of economic data have pointed to signs of a slowdown in several member countries of the EU.A sustained spell of economic weakness could be around the corner.
Some developments worth a mention include
-The world's biggest banks writing down $ 400 billion-Three of the largest central banks namely the Federal Reserve, the European Central Bank and the Bank of England injecting huge amounts of cash into the banking system
-The Federal Reserve opening its discount window to Investment banks to ensure availability of funds,an unprecedented first.
Given all these signs, the situation does indeed look alarming. Doomsday theorists have been having a field day, but there's light at the end of every tunnel. Its the journey to the end of the tunnel which can be really painful and needs loads of patience. Investors should look at the present picture in the bigger scheme of things and remember several markets are witnessing "corrections" after exponential spells of growth. Investors who thought the markets were an easy place to make money have been taught a very costly lesson. The problems being witnessed in the global markets are likely to continue in the near term, particularly if problems with mononline insurers intensify. A bailout of two of the largest bond insurers by a consortium of banks pointed to problems in the insurance industry. Clearly the problems have not disappeared and could resurface.
Unfortunately the dark clouds over the financial markets are unlikely to dissipate in the near term, if getting the direction right in markets is difficult, timing the markets is almost impossible. Volatility is likely to remain high, staying on the sidelines and waiting for clearer skies would be the best bet in such times. As the old saying goes, a bird in the hand is worth two in the bush!!
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