DDA flat prices in gold

Real Estate gold price denomination: I did some actual research and found these historical gold prices per 10 Grams in Rupee:

1925 18
1930 18
1935 30
1940 36
1945 62
1950 99
1955 79
1960 111
1965 71
(Rs)
1970 184
1975 540
1980 1,330
1985 2,130
1990 3,200
1995 4,658
1996 5,713
1997 4,750
1998 4,050
(Rs)
1999 4,220
2000 4,395
2001 4,410
2002 5,030
2003 5,260
2004 6,005
2005 6,165
2006 8,210
2007 9,500

Since I have actual DDA flat price data only from 1980 when it was 50,000 for 2BHK, I have calculated below the price of flat in gms psf:


Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf
1985: 213 per gm 250 psf= 1.2 gm psf
1990: 332 per gm 800 psf= 2.4 gm psf
1995: 465 per gram 1600 psf = 3.4 gm psf
2000: 439 per gram 1600 psf = 3.6 gm psf
2006: 821 per gram 3500 psf = 4.2 gm psf
2009: 1570 per gram 8000 psf = 5 gm psf
2011: 2200 per gram 14000 psf = 6.36 gm psf

As per this data, excluding the 1980 price as being an outlier due to the 1979 oil crisis and historical peak of gold prices, average price from 1985 to 2009 has been about 2.7 gm psf. But there has been a secular trend of increasing RE prices from 1980 to 2011 which has shown about a 1gm psf increase every 5 years or so.

Assuming 1gm psf in 1985, in 1990 it is 2 gm psf, in 1995 3gm psf, in 2000 4 gm psf, 2005 5 gm psf and 2010 6 gm psf.

According to this trend of 20 years, RE has been increasing steadily and hence current levels probably represent fair value.

I am unable to comprehend this trend properly or find any real explanation - we need to think about this. According to this trend, RE increases by 1gm of gold psf every 5years in India.

I dont think anyone has ever talked about this that I have read about. This is new stuff.

Probable cause: Increasing tendency to overvalue real estate as time goes on, because of "percieved" safe haven status. Otherwise in real prices, RE price should keep pace with inflation.

Another cause for overvalue is because of changing location premium. In 1980, DDA flats bere built at the outskirts. Now they are in the center of the city.

If we look at the prices for remote flats at outskirts of the city, prices would be:

Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf (Yusuf Sarai)
1985: 213 per gm 100 psf= 0.46 gm psf (East of Kailash)
1990: 332 per gm 500 psf= 1.5 gm psf (Mayur Vihar)
1995: 465 per gram 1000 psf = 2.15 gm psf (Dwarka)
2000: 439 per gram 1000 psf = 2.27 gm psf (Gurgaon)
2006: 821 per gram 1900 psf = 2.31 gm psf (Sohna Road)
2007: 950 per gram (RE bubble) 3300 psf = 3.47 gm psf (Sohna Road)
2009: 1570 per gram 3000 psf = 1.91 gm psf (NOIDA Expressway)
2011: 2200 per gram (Gold re-bubble?) 2000 psf = 0.9 gm psf (NOIDA Extention)

According to this analysis, cost of a flat is betwee 1 to 2 gm psf in the edge of the city. When the flat price drops to 0.5 gm psf, then gold is getting into a bubble. When cost psf drops to below 0.5 gms psf, then price of gold is likely to crash.

Conversely, when price of RE rises above 2.5 gms psf, then RE is overvalued. When price of RE is more than 3-3.5 gms psf, then RE is likely to crash.

According to this analysis, current RE valuation is fair value - whereas gold is getting overvalued. Chances of gold prices correcting are more than RE prices correcting.