[QUOTE=Kimmig;201595]Awesome analysis in the above note .. but let's get down to basic fundamentals .. how can prices of dwellings in India be more or even equal to those in developed nations (in relatively comparable neighbourhods .. let's say in terms of commute time to the central business district) WHEN

1. The average salary of people in India is nowhere near that of people in the developed nations

2. The infrastructure cannot be compared to those in developed nations

3. The quality of construction / fittings cannot be compared to those in developed nations

4. Even the type of ownership cannot be compared to those in the developed nations. What we terms as "flats" are termed as "co-ops" in the US .. these are considerably cheaper than independent houses / condos as one does not own the 4 walls of the apartment or the land on which the dwelling stands. Can someone tell me how much it would cost to have a 3 bed "house" (not flat) in Mumbai??

Any thoughts? I know a lot of people make a lot of money in India .. but am talking abt the Average Joe on the street not the investment banker types here. For me .. the math just doesn't add up. People are paying 1.5 Lakhs rent in Bandra .. that's as much as one would pay in Manhattan in one of the swanky towers there .. and from what I could make out of the note .. this is just the beginning .. jeez .. give me a break.

Look at any of the recently released buildings .. not even 10-20% of the lights are on in the evenings .. as middle class .. are we just shooting ourselves chasing this dream of owning a home?[/QUOTE]

The answer to your question is simple - currency depreciation.

Right now, Indian Rupee is temporarily strong. So you are calculating 1Crore = 200,000 dollars. But if our currency depreciated to 90Rs to the dollar, 1Cr = 100,000 dollars.


Since whatever you have said above is absolutely true, something has to give way and that something is our currency.


So expecting 60Rs to the dollar within the next one year would not be wrong. Only reason it hasnt happened is because US rates are abnormally low.


The moment US rates start tightening (and it has to happen at some time in the next few years), our currency will depreciate like crazy.


Let us assume a few approximate prices and see (dont remember exact prices)


Year X USD/Rupee X Median US house price X DDA flat 2BHK price in Rs (dollar) X Ratio India house/US house


1982 X ? 12 X50,000$ X1,00,000 Rs (=8000$) X6.25

1987 X? 18 X75,000$ X8,00,000 Rs (=40,000$)X 1.85

1992 X30 X100,000$ X6,00,000 Rs (=50,000$) X2.0

1997 X35 X150,000$ X25,00,000 Rs (=70,000$)X 2.0

2002 X45 X200,000$ X35,00,000 Rs (=70,000$)X 2.85

2007 X45 X250,000$ X80,00,000 Rs (=175,000$) X1.42

2011 X45 X225,000$ X125,00,000 Rs (=275,000$)X 0.81

So historically US homes have costed around twice the price of a DDA flat. 1982 I dont remember the US exchange rate (strangely, could not find a good web site going back that far - anyone can post a good link????) , but US median housing price readily available - I have rounded off for easy analysis. For rIndia, I went with DDA flat whose market price I know.

Currently, US homes are cheaper than in India. For reversion to mean, this ratio, currently 0.8 has to go back to about 2.

So one of three things has to happen

1. US homes have to appreciate by 100% (double). Seems impossible, but with inflation stoking by printing currency, ultimately it will happen

2. India prices have to fall 50% (RE bull theory proved wrong guys believe this).

3. USD has to appreciate 100% (i.e double to 90 per dollar).

It can happen in any ratio. Over the long term, probably, 30% of each of these will happen i.e US prices will rise 30%, Indian prices will fall 30% and USD will appreciate 30% i.e Rupee depreciation of 30%.

Question is which will come first? I as a RE bull theory proven right person, believe the order will be: Fall in Indian prices by 30% (happening right now), Rupee depreciation by 30% (expect to happen in next one year) and then US house appreciation by 30% (probably take 5 years and more)

OR - Rupee can show run away depreciation. I remember 1991 when there was flight of capital. We had to devalue and shift to semi float. From 18Rs to dollar price went to 30 Rs to dollar if I remember right.

If there is flight of capital, same thing can happen again. All of our forex reserve is hot money from FII who want to chase our volatile stock markets.

We cannot allow them to put money in our gilt bonds - because with US rate at 0% and Indian rate at 8.4% or so, that is an arbitrage which will either bankrupt us or shift our rates to about 4% which would stoke the wildest inflation we have ever seen and collapse our monetary system.

Our only option is to allow them to take their money and go and face a massive depreciation of Rupee - which will cause a bad recession and also stoke oil price inflation.

The truth will lie somewhere in between -30/30/30 I wrote above is the safest prediction possible