Second look on Market Timing

On February 3 I wondered when to get back into the market with my successful exit cash. To cut a long story short, I did not get in, when I could have doubled my money in 3 months. I kept waiting and then it was too late. All I could do was book a little more profit for some holdings at Sensex 15000. Good timing for the exit. Again, this only reinforces my earlier belief (see Feb 3rdpost) that it is easy to exit but difficult to enter well.

I console myself with the thought that nobody could have predicted such a great election victory. And the lesson learned is that 3 months of pessimism wipes out all weak hands who sell and exit. Markets in oversold territory will bounce up after 3-4 months of pessimism. Even a 20-25% gain from 8000 to 10000 Sensex or so would have been worth it.

Now I am hoping for a rerun of the 1931 second dip after the bear market correction, so that I can get in.

Sensex 6000, where are you?!!!

Musings on Real Estate

(Post from India's housing bubble discussion board)

My point of view nowadays is that it is better to buy now before inflation wipes out the Rupee.

There is oversupply in the markey for real estate.But if you research the market, you will find that oversupply is in the premium/luxury market (>50Lakhs). Nobody built affordable i.e. 20-30 Lakh flats in the last 5 years. Demand in this segment is inexhaustible for the next 50 years. Also rent as a proportion of cost is favourable in this price range. One can think of getting a renter for 15000 bucks for a 30 Lakh flat. Nobody will pay 30000 rent, even if the flat is a 60Lakh luxury one. Even if they do, they will think of renting close to work, not in the boondocks where the flats have come up recently. I doubt if anybody is going to rent the luxury flats built recently (those who can afford such a rent have purchaed 3 flats each!). If one is thinking to buy a luxury flat now, I would say OK if you are going to live in it. Not OK as investment - wait for at least one more year.

Affordable range flats are not going to correct any more. Builders have been bitten once - they wont oversupply this time. They will trickle in small number of new projects for the next 2-3 years and will slowly start raising the prices as inflation (cement, steel, tiles) kicks in. They have purchased land at high price for luxury flats with high margin. They will not want to build cheap flats on them if they can avoid it. They will keep as much land as possible with them for 2-3 years, waiting for market to improve, then launch more luxury flats at even higher (inflatin adjusted) prices.

Just to satisfy my curiosity, can anyone tell me how much is the EMI per 1 Lakh loan (for 15 years) currently? I need it for calculation. At Rs.1000 pm EMI for 15 years, repayment is of 1.8 Lakhs on a 1 Lakh loan. In India's history, a 10 Lakh flat has always been worth more than 18 Lakhs after 15 years - not forgetting rent received/saved which hasnt been accounted. Will a 30 Lakh flat be worth over 60 Lakh after 15 years? I have no doubt. It is a great leverage play. But I dont want to spend all my salary on an EMI for something that will be valuable when I am old/dead. So I never leverage.

If you have 30 Lakh in hand, it will double in 9 years in a safe bank FD at 8%. Will a flat bought today for 30 Lakh double in as many years?

I am not sure.

SIMPLE RULE: Rent or Buy?For self occupation, in USA, the simple rule is that if the property is priced more than 200 times monthly rent, it is better to rent than buy.So if you can get a flat for 5000Rs rent, you should buy it only if it is for 10 Lakhs or so. If it costs 20Lakhs, you are better off renting.India traditionally has high RE values. I wonder what the multiple should be? I stick to the same 200 . At 15000 PM rent, 30 Lakhs is what I am willing to pay. I can buy a juggi. Or a flat 50 KM away.

Shubh Chintak, while I am in agreement with you, I think the deflation (as regards RE) has been happening for the last 6 months. Rest of the deflation in RE is going to be relative - to galloping inflation in essentials (I expect that to start in 2010 and last till 2014). RE prices will stay the same till 2012 while everything else will go up in price. 2012 onwards RE prices will also go up as cement, steel and tile prices also go up.So 2012 will be the time to time the market with built up property. For upcoming projects, the time to time is NOW!