After going through a lot of IMF data and previous discussions, I feel that one can arrive at broad levels of productivity ($ per capita per annum) in large polulations as follows:
Personal productivity level
Illiterate subsistence: <500 $/PA
Literate/Semi skilled: 2,500 $/PA
Skilled 10,000 $/PA
Intelligent and skilled 20,000 $/PA
Governance Pemium National productivity level
Non-existent governance Same as personal productivity
Poor quality governance Double personal productivity
Good governance but corrupt Quadruple personal productivity
Good governance without corruption Eight times personal productivity
Regional deflator:
Above average population: 1.25
Average 1
Below average 0.75
Personal productivity levels:
1. Illiterate subsistence: These are basically living in iron age agrarian subsistence level or below, without mechanization. Examples are Africa, Indian subcontinent, Burma. People living in Neolithic hunter gatherer tribal levels have a per capita GDP of about 200$. Depending on climate and rains, agricultural settlements can range from 200 (famine in Orissa or sub-Saharan Africa) to about 500$ (=25000Rs=2000Rs per month) per annum in most illiterate agrarian communities. Bihar at 350$ is an example, as is Burma, rural UP and most of rural India.
2. Literate/semi skilled: This includes agrarian communities with some amount of irrigation, some amount of mechanization. For example, Rural Poland, Ukraine, rural Byelorussia, rural Slovakia, Rural North Korea, Indonesia, rural Malaya and Thailand, Rural China. Also for semiskilled workers like weavers, metal workers, carpenters, masons, BPO workers etc. Range of productivity from 2000-5000$ (80- 250,000 Rs per annum = 10,000 -20,000 Rs per month). Many of the worst exploited industrial workers in India, China, Mexico, Bangladesh have this level of productivity. Also includes BPO workers fresh out of school or college, without significant work experience.
3. Skilled: These are highly trained workers who can do five-10 times as much work as semiskilled workers and use the latest machinery and equipment. Similar to most blue and white collar workers in countries like USA, Italy, Germany etc, urban South Korea, Taiwan etc. (production floor workers in big mechanized factories high on machinery and low on labour, nurses, secretaries. Lack math skills and or big memory retention or independent original thinking but capable of learning and using highly specialized equipment. Most factory workers in Taiwan, South Korea, Malaysia, other healthcare professionals like nurses etc, low level IT workers.
In many developing countries surviving on wage arbitrage, such skilled workers are paid the wages of semiskilled workers despite their higher productivity. So a Hero Honda worker is probably half as productive as a Japanese Honda worker, but is paid only 15-20,000 per month, much below his actual levels of productivity – but this gets reflected in low cost of the finished product as well.
4. Intelligent and skilled: These people have the capacity for innovation, highly specialized thinking along with high skills. Include engineers, doctors, IT workers, entrepreneurs, business men, business managers, biologists, college professors, pharmacologists etc. Their productivity is to be measured in terms of managers who direct the activity of other less able workers and hence part of their value is how they help others to work.
Governance premium: National productivity level
This is reflected in governance success or failure. I have tried to ball park my estimate of its value as indicated above. There can be no doubt that it can boost productivity in geometric progression. So the same doctor has a value of say 20,000 $ per annum in India but 160,000$ per annum in USA – eight times higher, because of the improved governance, refected in superior productivity at every level.
1. Non-existent governance: Govt doesn’t work. Includes Africa, Rural India, Burma etc. Most populations living in illiteracy are because of this kind of govt failure. India probably has pockets of poor quality governance alternating with large swathes of no governance. So the current 1200 $ per annum per capita GDP reflects an average between enormous numbers of illiterates with no governance, small numbers of literates/semi skilled/skilled/skilled with intelligence living in no governance areas and many small pockets of poor quality governance like Gujrat, Bombay and other big cities. Extremely small numbers live in good governance but corrupt levels of governance, largely within the confines of a big companies campus, where to some extent the pervasive government failure is held at bay. For example, Infosys, Jamshedpur, some of the Bombay companies, some areas of Gujrat etc.
2. Poor quality governance: Deeply flawed non-democratic govt. Includes, Stalinist govt like in USSR, Mao China and other communist regimes which are no more, current govt of Burma, Cuba, Venezuela and other South American and Central American countries, North Korea, Indonesia, Soudi Arabia, Iran, Egypt, Algeria etc. These flawed govts differ from the non existent govt in 2 main respects – their populations will show either cent per cent literacy or higher levels of productivity of their country as a whole from about 2500-5000 $ per annum. The few parts of India which have governance have this kind of flawed socialistic and ineffective governance. It is manned by inept people and run on flawed governance principles. So unnaturally loud and vociferous people (NGO, commies, socialists, loud and abrasive media) are able to sway and influence this governance. Until one gets right thinking people at the top and widespread literacy and some level of appreciation of capitalist principles, such a government will remain ineffective. Corruption in such governments is not only pervasive, it has the effect of stalling all meaningful work. Despite that, some things work. So Cuba’s health system, Mao’s education system, Russian military, Indian banking system – all work well.
3. Good governance but corrupt: These are highly efficient capitalist govt but having populations unused to corruption free existence. Include Southern Europe (Spain, Italy, Greece), Eastern Europe (Ex-communist countries), Deng’s China, Recent Brazil, Mexico, Turkey, Syria, Iraq, Malaysia, Thailand. The degree of corruption and level of efficience can vary within a range. Some aspects of US government in recent years falls within this (as it did from 1870 to 1930). Mostly these are countries which have been affluent for only a generation or so and include a lot of Crony Capitalists, Robber barons, Mafiosi, but have better administration so that capitalism can perform its magic. These countries will have periodic crisis because the corruption magnifies the economic cycle effects causing deeper and more pervasive recessions. For example the Greek crisis, the South East Asian crisis of 1998, Chaebol failures of South Korea, Dubai RE crisis of 2009, even the US crisis of 2008 marred by regulation failure in the face of corrupt lending practices. Older recessions in USA like the great depression, the recession in the 1870s, the 1890s, the 1907 also fall within the Crony Capitalist/Robber baron territory. The bursting of the South Sea bubble, the Dutch tulips etc also fall within this.
From 1850s or so, most of northern Europe moved from the “good governance but corrupt” to “good governance without corruption” phase. There are very few additions to this group since then. Japan is the great success. South Korea will probably join soon, along with Taiwan. USA, Italy and Spain continue to flirt with it. Most of the USA probably is solidly within, but significant populations show poor governance and corrupt practices associated with a less developed state. China is very very far away - as also rest of East Asia and West Asia.
4. Good governance without corruption: Mainly North Western Europe, Japan, parts of USA, parts of South Korea and Taiwan. Characterised by a population which has been affluent for a significant number of years or centuries of affluence. Highly law abiding and hard working. No tendency to break rules. Govt is efficient and doesn’t have corruption problem.
Regional deflator:
Countries away from equator (North Europe, north America, Argentina, Australia, New Zealand, Japan) have a tendency to have harder working population with high levels of intelligence, hence leads to a higher proportion of the population taking up skilled and intelligent jobs. Such countries tend to be more productive and I have jacked in 1.25 as an inflator for these. Mainly these are north Europeans, Jews and Japanese. Small pockets of classes within every average population, usually for historic reasons of hard work like with Koreans, some classes of Chinese, East and Southern Europe, West Asia etc and some classes within India (otherwise mainly slothful) also have such tendencies.
Rest most of the countries have average levels of intelligence and hard work and perform averagely
Some countries have slothful populations who demonstrate an inability to learn and improve themselves. Africa, Indian Subcontinent, Burma and small pockets elsewhere (Ukraine, Peru, Yucatan, Jamaica, Borneo, SriLanka etc) usually characterized by very bad (hot or cold) weather and historic national character of laziness. I have put in a 0.75% deflator as a ball park figure. People are not going to change their national character in a hurry. What the masses within a country do defines the country – small elites cnnot change national character.
Comments:
Countries with literate populations tend to have poor quality/communist govt. Such countries have per capita GDP ranging from 2500 (literate but ungoverned like North Korea) to 5000 (literate 2500, double for poor quality govt = 5000). Such countries are currently trying to finish the basic step of literacy. India is one such country. Such countries are currently in the transition from 2500 to 5000$ per annum. Examples are Egypt, Algeria, Ukraine, Indonesia. Literate populations within India are in the same stage. Until they achieve this basic level of productivity, further increases are difficult.
Some Countries with highly efficient but corrupt govt are currently in the high growth phase. Examples are China, Brazil, Russia, Mexico, Malaysia. These countries have recently acquired efficient govt. Their population is largely agrarian (China, rural Russia, Malaysia) but is systematically transitioning to Literate/semiskilled and to highly skilled levels. Hence their national average reflects proportions of their population in these levels of development. So China has mainly Semiskilled labour (2500$ = 5000Rs per month) mixed with skilled (10,000$ per annum). Because of efficient govt, these are then multiplied by four. Hence national GDP per capita of around 4000$ with 1.3 billion people.
Countries like Mexico (60 million population) , Brazil (200 million population), Russia (140 million population) have national GDP of 10,000 $ average. So does Poland, Malaysia etc.
In this scheme:
Lowest productivity is around 500$, highest is around 200,000$ productivity.
If you are intelligent and skilled (20,000$), live in efficient non corrupt country (8 times = 160,000) and are of north europe/Japanese (1.25) then you can be productive to the extent of 200,000 $.
India has a zero govt with focal poor quality govt.. Most population has 500 x 1 level of productivity. Some have 2500 x1 productivity. Very few have 10,000 x 1 and 20,000 x 1 levels. So if you are intelligent and skilled and adopt the non-corrupt efficient hard working ways of the north european/Japanese, maximum you can produce is 20,000 x 1.25 = 25,000 dollars.= 2000 dollars per month = salary expectation of around 1L per month ON AVERAGE for the best population pockets in India, assuming your salary reflects your productivity. So company salaries can be expected to be between 50,000 and 2L per month = the best you can do within India (usually best practices of north European levels are only found to some extent in software companies). Of course, small number of managers in manufacturing relying on semi skilled workers (2500 $ = 10,000 Rs per month salary) can earn whatever amount – since these are a small elite group running the working of much more inefficient workforce. Company can pay them much above 200,000 dollars also, depending on their value to the company.
Please note that because of very poor govt, no matter what you do, you cannot be more productive than 20,000 x 1 or 20,000 x 2 = no way out except emigrate for achiving higher levels of productivity (and hence income)
China: It has a efficient but corrupt govt and has average per capita GDP of 4000$ = average of 500 x 4 levels (rural) and (2500 x 4 = 10,000 levels of production along with small numbers in the 10000 x 4 levels.
Taiwan and South Korea have around 25000$ productivity i.e. average of 2500 x 4, 10,000 x 4 and small numbers of 20,000 x 4.
Japan, UK, USA, north Europe has a large number of 2500 x 8 = 32K, many 10,000 x 8 = 80K and some 20,000 x 8 = 160 K leading to an average of around 45000$ per annum.
Trends: Non-existent governance usually goes with slothful nature and illiteracy. Such countries like India, Bangladesh, Burma, Africa usually have per capita GDP of less than 500 (illiterate plus zero in govt plus 0.75% deflator)
Mexico and Brazil have a lot of 2500x4, few 10,000 x 4 and miniscule 20,000 x 4
Future Trend:
This analysis clearly indicates that India is in a different position from China, Russia and Brazil.
Growth in India is coming from shifting people from 500$ of productivity to 2500$ of productivity. This has to coincide with shifting from non-existent governance to poor quality governance. So far, this shift has been very difficult to manage (excruciatingly slow politicians) but slowly our younger population are becoming literate and employable at 2500$ productivity level. Since this has to coincide with a shift of the governance premium from single to double, India can look forward to shifting from 500$ per annum to 5000$ per annum productivity over the next couple of decades.
This means a ten times rise in AVERAGE productivity levels = 1000% return on human capital = 10,000% return on any smart business which is able to capitalize on this gigantic shift in productivity levels.
Russia Brazil and China can at best look forward to shifting from 5-10,000$ productivity levels to 20,000$ productivity levels = 2 times return on human capital. All three countries have skewed economies. Brazil has a growing population with commodity export economy, Russia has declining population and commodity export economy while China has a declining population with cheap manufacturing (2500-5000$ type) of economy.
Shifting Chinese to 10,000$ productivity by a mix of 5000 and 20,000$ productivity should be easy enough. Then it will hit a demographic impossibility to grow.
Shifting Russia from 10,000 to 20,000$ is probably more difficult because of declining education and engineering abilities. They have probably reached the best level of productivity they can. Russia is where China hopes to reach. Then both will pause without growth.
Brazil has the best growth possibilities of these 3, because of increasing population and massive tourism opportunities. Probably it will shift from 10,000 to 30,000 levels within the next 3 decades.
There can be no doubt on two things:
India is a structural long term bull run in equities and for real estate for next 50 years (ours and our children’s lifetime)
If you had money in 1950s, you should have invested in USA. If you had money in 1980s, you should have invested in China. If you had money in 2000, you should have invested in Brazil.
If you have money in 2011, invest in India.
Thursday, August 4, 2011
Thursday, June 30, 2011
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.
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.
Thursday, June 23, 2011
[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
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
Saturday, January 1, 2011
Long term predictions and predictions for 2011
Wish you all a very happy new year.
Before making any predictions for 2011, I would first like to make some long term predictions.
Usually these are supposed to be easier to get right than short term predictions, but let us see.
Predictions are from 2010 to 2050. All dollar values in current value not inflation adjusted.
Economy:
USA: I expect the USA to go into a fairly long term low production growth situation. Having peaked at $45000 per capita GDP per annum, I expect much slower growth of maybe 0.5% per annum in productivity. Total productivity rise can only take place with increasing population of immigrants who will be less productive than the mean – so productivity per capita should fall even if the total GDP rises. This means Americans will be progressively less wealthy and will fall to meet the rising East Asia.
I am failing to see the kind of innovations from 1980-2010 in computers, telephony and internet which transformed society. I don’t think there is any such enormous technological shift in the near future which increased productivity drastically. USA will remain a 15 trillion economy till 2050, unless they encourage massive migration
Europe: I anticipate steady state. Productivity will be dependent only on the aging phenomenon and demographic shifts. Productivity of 6 trillion in Germany, 4 trillion in UK, France and Italy each. Probably 20 trillion in whole of Europe put together.
Japan: Status quo. 4 trillion economy
Korea, Taiwan, Singapore: Will reach developed country status of 45000 dollars per capita very soon. Total economy will grow because of younger population and will flatten trajectory by 2030. Probable economy size of South Korea would be 4 trillion, Taiwan 2 trillion.
Indonesia, Malaysia, Tailand: Will accelerate productivity growth to reach Korea levels in next 20 years and by 2050, Tailand and Malaysia at least should have reached 45000 levels (or whatever level inflation adjusted). Which means Indonesia 5 trillion, Malaysia 5 trillion, Thailand 3 trillion $.
China: Currently at 4000 dollars, it may rise to 8000 by 2020, 15000 by 2030 and mean productivity of 25000 per capita per annum is possible by 2050. It will be a massive economy and supreme super-power. Probable size of economy 30 trillion.
India: I anticipate a lot of struggle to rise.
It is the only economy facing multiple hurdles and suffering from stupidity on a massive scale, with inability to learn modern ways. Currently it is at 1000 $ per capita per annum. With insufficient infrastructure and training, will reach 2000 $ per capita by 2017 assuming 9% growth, which is by no means certain.
India is facing massive government failure and economic failure, given the speed with which every other economy is racing ahead. The capable elite in India is prevented from leading the country by disenfranchising the educated population, unsustainable taxation levels which kill growth and encourage low grade parallel economy in black. The current population of 15 million elites, who were released from shackles in 1992, have propelled the last 2 decades of growth, with current ptoductivity of around 20,000$. Their numbers have failed to reach critical mass. They will probably double in the next 10 years to 30 million, since the population is young and 1 to 2 children from each family will be added to the productive population, along with slow accretion from the lower classes. The rest of the population currently consists of 150-200 million at 2000 $ per annum and 800 million at 500$ per annum.
Much of India’s growth is going to come from movement of an unpredictable number from 500$ per annum to 2000$ per annum and beyond to 3-4000$ per annum.
By 2020 one can expect the 2-3000$ producing workers to increase to around 300 million, 4-500 million by 2030 and 1000 million by 2050. Best case scenario for per capita productivity gain is 2000$ by 2017, 4000$ by 2025. I actually expect 8000$ in 2050, because I anticipate problems which would prevent doubling every 7 years. Which means probable size of economy is 8 trillion.
However, if India overcomes its problems, it could reach 15000$ per capita by 2050 and a 15 trillion economy, which would be a best case scenario.
However, please note that a 500 to 5000 $ productivity transition is twice as good as a 5000 to 25000 transition and five times better than a 25000 to 50,000 transition and is a much better business opportunity because the unconsuming become consuming rather than already consuming upgrading their consumption. So for businesses, India is the best
Russia, Brazil: Currently at 10,000 per annum, should reach 45000 by 2050, matching developed country. So they will be some 8-10 trillion each.
Politics
USA: It is likely to see marked shifts in focus in internal and external politics.
The total growth of population being needed for increase in economy size, there will be marked fights between the right and left on immigration. Currently, with underemployment, we are likely to witness a prolonged shift against immigration, until the excess unemployed workforce gets employed again. Since currently democrats are in power, they are likely to shift to right against immigration for the next election. As a repercussion, a fairly prolonged 5-7 year anti immigration wave is likely. If democrats win re-election, the anti-immigration will be overturned as soon as the economy recovers, maybe by 2014. If republicans win in 2012, the anti immigration is likely to continue till 2016 re-elections are over. After that, both parties would encourage immigration on a fairly large scale.
Lower paid workers would be needed for the infrastructure upgrades, health care and nursing for elderly. Mexico is currently at 10,000$ per capita. By 2016 this should be close to $15,000.
Infrastructure of Mexico is much better than India and there is no real incentive for richer Mexicans to go to USA where they will be looked down upon as “illegals”. Same may be the case with east Asia, where incomes and productivity will reach developed country levels soon. So I expect that only the poorest grade of workers would come from Mexico to USA, largely illegals.
USA will also encourage the best workers to immigrate there. Since most of East Asia would be close to attaining productivity of 40-45000$ per annum on their own, in all probability, Indians, currently stuck at 20,000$ productivity and salary would be the most likely to emigrate to USA. Within a few years, there is likely to be massive migration of highest grade of Indian workers to USA, maintaining the trend seen over the last 2 decades. Doctors, IT workers, Managers and Finance pros are the most likely people who might migrate to USA. Where they can shift from $20,000 to $60-80,000 paying jobs and more. They will also have the attraction of much better infrastructure, law and order, lack of corruption, health care and no chaos.
In other internal politics, democrats will try to increase taxes to pay for health and elderly care, but that will lose elections.
Also, democrats don’t have children whereas right wing republicans have lots of children, increasing their voter base.
The only quick fix is to import doctors, nurses (Philipinos and Latinos) and cleaners/construction workers (latinos). They will also have to reduce the doctor and nurse pay – currently 200,000 and more per annum / 45,000 per annum. This is likely to further reduce the incentive for whites to undergo prolonged training and difficult working conditions.
In international politics, USA will try to maintain its pre-eminence by a few tactical strikes.
There are two main strategic goals for USA. One is to prevent Iranian oil and Ex-USSR republics oil from being piped to China, without at the same time encouraging massive terrorist strikes in retaliation. Second is to encircle China.
Currently, USA is encouraging Ex-USSR oil republics to pipe oil to India and Pakistan. It is in our interest to cooperate in this, possibly using US capital for it.
Once this is in place, USA will probably encourage Israel to carry out air strikes in Iran nuclear sites. Iran will probably retaliate by trying to bomb the USSR-India pipelines and other US assets, which will give USA the excuse needed to effect a regime change in Iran. Once in control of Iranian oil, it will again try piping the oil to India through Pakistan.
Its policy of encirclement of China should see USA encourage India to have more border disputes with China, encourage India to be permanent member of UN – (the latter only if India stops being stupid and learns how to play the great game, which currently it does not), and engaging with Bangladesh to counter Chinese presence in Chittagong and to discourage Muslim extremists there. It may also try to boost tourism in Nepal and Tibet. It will probably leave Taiwan and North Korea alone, since China has given nuclear weapons to N Korea to deter USA (same as with Pakistan).
Once US economic situation improves, it is likely to target Chinese economy by trade wars.
China is probably trying to counter these moves in many ways. First by scaring India from being a partner with USA in these by war mongering. Second by using Indian communists as a fifth column sabotaging these efforts. Third by building its own oil pipeline from Baluchistan to China, which can then be linked to both Iran and Ex-USSR oil. Fourth, by encouraging North Korean belligerence and using the threat to peace as a bargaining counter in preventing US attack on Iran and reducing the efficacy of US encirclement of China. It will also increase presence of Chinese navy in Chittagong, Rangoon and Columbo ports. There is a possibility of China Iran military pact with stationing of Chinese forces in Iran to prevent Israel or US attacks. Fifth, China is busy reducing its reliance on US economy and is in a race to see whether US recovers first or China reduces dependence levels first.
All Indications are that Chinese efforts have been superior to USA and it will win the strategic battle.
India has shown itself to be a bad friend to USA and too unreliable for any real push from USA in these tactical and strategic goals.
Europe and Japan are likely to partner USA in these efforts, all of which require Indian cooperation for any bite.
By 2015 I expect the Iran situation to spin out of control, which will coincide with an oil super spike, if and when it happens.
By 2020 I expect China to win the supremacy battle with USA and massive recruitment of its population in a wordwide army stationed in strategic positions in South America, Africa, Middle East and Asian trouble spots.
USA will join battle and there will be a re-emergence of a cold war for world domination. Unless India joins in the battle on the side of the Whites, China will probably win the war, since its economy is in shape unlike USSR was.
China: Apart from its counter moves to US actions (US moves which appear quite constrained and limited, US seems basically helpless) China will be going full force in building a massive entente against the US led West.
Its main partner will probably be Russia. Russia plus China is a most dangerous combination and US will counter this by probable alliances with EX-USSR republics like Khazakhstan. They will probably fail and a massive Asian entente of Iran, Central Asia, Russia on one side and China on the other side consuming their output seems likely.
China will also build up its Navy and engage with Brazil, Argentina and other South American and African countries.
In its internal politics, China will probably keep succeeding as long as it is able to run its economy properly. Its efforts in the last 2 years have been masterly – possibly they understand economics and politics better than even Anglo Saxons. Whenever Chinese economy falters, chances of robust diplomacy/ war is likely to increase.
India. India faces complete political failure.
Our leaders are ineffective both in Congress and BJP.
Alternatives in BSP, SP and Communists are probably downright anti-national and economically suicidal.
Improvement in political leadership requires reform in Congress and BJP. Both seem currently incapable.
Long term change will probably require a complete breakdown to happen – either war with Pakistan/China, a massive Maoist rebellion or complete economic breakdown. Of these, war would be the most welcome alternative. Complete economic breakdown will probably not result in reforms and would be counterproductive, leading to a failed state and widespread chaos.
Internal: Congress is likely to initiate big reforms and elimination of corrupt and old people. It is more likely to succeed than BJP, whose efforts so far have been laughable.
I anticipate emergence of Arun Jaitly and Sushma Swaraj as the new leadership at center and dwindling of the rest. Possibility of Nitish Jumar as PM is possible if these prove ineffective in next 3 years and if Nitish proves effective. BJP will have to shed its old fashioned fuddy duddy image and become more modern if it is to succeed. If BJP loses next 2014 election it is likely to emerge stronger later on.
Congress needs massive modernization, which it has so far shown great reluctance to do. A lot depends on Sonia’s next move for the party. Long term over the next 40 years, the main trend is likely to be atrophy of regional parties and strengthening of large central parties i.e. Congress and BJP.
The period of breakway and small parties seen from 1990 to 2010 is likely to reverse direction slowly over the next 10 years and gain momentum.
By 2025, I expect disappearance of BSP and SP.
DMK and AIADMK will have to give up opportunistic alliance and chose sides with either BJP or Congress on long term basis and give up a lot of political space to these parties.
UP, MP, Maharashtra, Karnataka and AP are likely to see subdivisions into smaller states.
If India has to prosper, there has to be planned urbanization and setting up of city states. I expect our politicians to fail in delivery of this, which will lead to emigration of the best talent out of the country.
In foreign policy, extreme stupidity and inability to side with the Anglo saxon world will continue.
Pakistan: I expect a status quo in Pakistan which will play off China against USA without taking sides. In case of war between India and China, it is likely to launch an opportunistic attack on Kashmir. It is likely to be a big beneficiary of the oil economy from Iran and Central Asia if it plays its cards right – currently it is being stupid. Ideally it should seek massive investments in oil and oil based manufacturing by getting rid of the terrorists and taleban etc. So far, it has shown as much stupidity as India in making right economic moves. Its political leadership has failed the Pakistani middle class which is larger than India, wealthier and better educated, when seen in percentage terms of total population vis a vis India.
·Demographics.··Chinawill reap the demographic dividend of population control by the simple expedient of deserting its old and infirm and focusing on the young, its future. It will simple allow the old people to die and not worry overmuch about their standard of living. This is a big difference between China and the West, the latter being forced to look after its old. By this simple method, China will overcome the overhang of aging population and march ahead. ··USA will face a slow graying of its population. Baby boomers will become old all of a sudden just 10 years from now and will live into their 90s, putting strain on its economy. Growth in economy will have to come from immigration.
Russia will continue to dwindle in numbers even as its population gets much wealther, same as Eastern Europe.
India will face large scale political disruption as its young population gets impatient with the stupidity of its political leadership. However, every youth succeeding in politics will be corrupted and will fail to deliver anything, this being our national tendency. Real leadership will only come from the 50 something generation – when they realize that our restive population is asking for a change from current corrupt ways, they are likely to effect a change.
Arun Jaitly and Sushma Swaraj seem the only possible leadership which might emerge, who have sufficient intelligence to transform India to suit its young population’s requirements. If the stupid BJP leadership does not recognize their intelligence and continue with idiots like Gadkari, their party will fail completely.
Congress is likely to look for leadership from Rahul. If he fails them, their current anachronistic chaotic party system will also fail. Although Rahul is dumber than most other politicians, he has sufficient support from the party and people – just like Rajiv Gandhi – and is likely to be asked to take over the party with in the next 5-6 years. If he waits longer, he will fail and his party will go into terminal decline.
It is impossible to predict longer than the next 10 years for India because unlike China and USA, where there is effective leadership and stability of thinking and social movements, in India, everything depends on both our parties effecting life saving changes. If they fail in the next 10 years, India will fail as a state and is likely to break up, helped by China, Pakistana and Maoists/Communists
·Weather: The latter part of 19th and whole of 20th century has been exceptionally benign from extreme weather. This window period is now over and the world will return to extreme vagaries of nature in the next 40 years. Anything predicated on good weather – like Indian and Chinese farming practices, will face stress and this is likely to be one of the big negatives for the increase of Indian productivity upgrade above 500$.
·Stocks. India is in a long term bull phase which will last for 50 or more years. There will be cyclical patters within this, but the growth chart will be like the Dow from 1930 to 2000.
China will be similar or even better.
Europe and USA will be flat or show 2-3% growth – any growth higher than this will come entirely from the operation of multinationals.
Russia and Brazil will be the best performers and will rise meteorically. ·
RE. India and China are both in a fantastic long term bull phase.
India will perform better than China because it will be more inefficient in its urbanisation. Any efficiency like the coming of the RE regulator, improvement in land use laws, improvement and computerization etc will initially cause a small term downtrend for a short period which will be followed by a massive upmove as more and more people enter the RE consumption place. Again, India will be dominated by the first time buyers while China will be dominated by the upgraders from small 2BHK (current Chinese all families have 2BHK of 600-1000sf, from which they will shift to 4BHK 2000-2500 sf carpet area which is the norm for developed nations.
USA will depend entirely on immigration for its growth and for the next 20 years one should expect static markets.
Europe will be static.
Brazil will grow while Russia will be a declining market.
Basically RE growth/decline will be based on demographics.·
Bonds: As we recover slowly from the economic crisis, expect rise in bond yields to around 5-6%. Rates will rise all over the world and will be linked to inflation. Robust central bank actions will be increasingly perceived as deleterious to the economy and the trend to have too many rate adjustments will decrease. Within 10 years, inflation control will become the main purpose of central banks and not growth stimulation. In USA, I expect current low rates to continue for a few years, with slow upward bias. This will change to sharp upward bias when there is sudden and extreme inflation. At that point, there will be a crash in the bond market and rates will probably reach 8%. Europe will be similar with more stabe rates than USA. China and India will have corresponding changes too – so in India, rates of 15-17% can be expected when US rates become 8%. Probability of this happening is high in the next 10 years. After this round of rate increase, the rates are likely to stabilize around 5-6% for the long term and same will happen in India.·
Gold. This will be highly volatile. Its value will be in focus for the next 10 years. After that when world returns to stability with steady bond rates, gold will lose its value. Within 20-25 years, it will lose its status as a proxy for money and prices will decline to its production value and consumption value as jewelery. It is unlikely to return to favour for the rest of this century, because a lot of people will have observed its behaviour and would have learnt its ways and would have also burned their hands.
Gold is the classic speculation – something of no value being bid up in price based entirely on the greater fool theory. Those who are stuck in it last – when the gold bubble bursts, will never again return to this metal and will warn all future investors against it.
However in the near future, gold will be one of the best repositories of value – as we wait for the economy to recover and the rates to rise suddenly. Everyone in gold is basically waiting for the sudden global inflation event, as the QE and rate lowering across the world finally finishes. After this inflation event, which will last for 2-3 years and even more in some countries like India, gold will collapse. The better one times exit from gold, better ones returns – selling at the last possible moment before collapse will deliver fantastic returns, sudden crash will wipe out a lot of gains. Since every bubble has many bull market corrections, it will be a difficult to ride this upmove, but basic allocation to gold is essential until the inflation even is behind us.
·Education. The price of education will fall in USA as earning capacity will become more constrained. The difference between the intelligent and highly trained getting 200,000 and more $ per annum versus the stupid and untrainable who will earn 25000 $ per annum will widen. Many Americans in low paying jobs will find that they are better qualified and capable than many in the Asian economies who are less efficient and earn better – these whites will increasingly take up jobs in BRIC countries, which will limit the amount of salary increase one can possibly get in BRIC. In India, tose earning around 25000$ i.e. 1L per month will find that their future growth prospects are being dimmed by whites taking away job opportunities in the 75000$ per annum range i.e. 3-4L per month. The west will lower the bars for education in medicine, currently 12-14 years of training, making it easier for whites to enter medicine in the general practitioner level. Probably, they will make it 8 years of training. This will probably limit the number of Indians who enter medicine in West. General pay for doctors will also fall to 200,000 dollar levels.
In other fields, the entry barrier for education leading to high paying jobs will widen. Initial investment in education for engineering and technical fields will increase to around 150,000 dollars for jobs paying over 100,000 dollars per annum. This will greatly restrict the field for those who are less talented and are unproductive i.e. most lawyers and finance executives, whose pay will decrease and also the entry fee for management education and law education will fall.
Computer will be the top field after medicine in USA, followed by other engineering fields.
In India, focus will shift to better organized fields for education. Engineering and software will be top followed by manufacturing. Management will slowly fall in value as management skills improve across the population regardless of training.
Medicine will see chaos because of the current reservation policy and is unpredictable what will actually happen.
Long term, there will be shift from govt sector to private medical colleges, but fees will fall as earning capacity and capacity to deliver good medical care will slowly come into focus. Regulation of the medical field is likely to improve but only after a widespread failure event.·
Wars. In the long term , all wars will be resource wars. War over oil access is likely to be a cold war between China and USA. War over water access is likely to be border wars between India on one side and China, Nepal, Bangradesh and Pakistan on the other.
PROBABILITIES IN LONG TERM PREDICTIONS
Probablity:
Long term ecomomic direction:
USA static picture with immigration determinant ~ 100%
China rising to 25,000$ production by 2050 ~ 100%
All other countries ~ 100%
India rising to 8-10,000$ by 2050 ~ 50%, main limitation is weather, wars and Maoism/govt failure
Best place to invest: China, Brazil, Russia.
Best possibility of higher return with high risk high reward scenario:India
Wars:
Cold war with China and USA ~100%
Hot war action by USA ~5%
Hot war action by China depends on economic slump.
Since long term rise of China is likely to be marked by many market corrections, every major downturn will increase the risk of hot war from China.
Risk of one Chinese war ~20%. Tisk of second and many wars if one war has already taken place ~100%.
So peace on earth is mainly determined by China rising peacefully and not initiating the first war.
Risk of India having a war with one of its neighbors in next 50 years ~ 50%.
Risk of India China war ~5%,
Risk of India Pak war ~40%,
risk of military action on Nepal and Bangladesh border 5%.
Any India was other than with China will showcase the futility of war and will probably reduce incidence of second war.
Reasons for predictions : We have had 5 wars in last 60 years. Current neighbors more unfriendly than before. Chances of govt failure being percieved as complete collapse of India govt are high. Probable time frame for war is around the time of the extreme inflation event which as anticipated might transpire in 5-6 years time.
Demographic predictions: ~100%
RE for India:
Bull phase for 50 years ~100%.
Following of 7-8 year RE cycle ~100%.
Since previous bull phase of 2004-2008 was extra-ordinarily strong, next bull phase in 2014-2018 is likely to be weak.
However, in caser this RE bull phase coincides with the anticipated hyper inflation event, there will be combined increase in price drastically combined with economic turbulence – so there will be combined high rates and economic chaos preventing new release of vacant property combined with extreme price volatility. It will be very difficult to be able to buy property in this scenario. It is therefore better to complete one’s planned acquisitions before these events transpire. Once we cross this inflation and turbulence event, likely to be over definitely by 2020, once things settle down, one can buy better quality RE with better inflastructure in tranquility. Those planning to buy should buy now or hold their peace for 10 years, wait out the turbulence and then buy. The next bull phase is likely to be quite risky and difficult time to buy.
Gold ~50% chance of things happening as predicted. Other 50% chances are that gold collapses much before massive rise (25%) and gold becomes defacto currency because of widespread currency failures and wars (5%) and that gold maintains current status quo bull phase for extended periods over 50 years (20%)
Predictions for 2011 for India:
Stocks
Chance of a 10-15% correction very high ~70%.
Chance of status quo at nifty 6000~ 20%.
Chance of a upmove to Nifty 6500-6700 ~ 10%
Chance of big upmove to Nifty 7000 ~ 5%.
India will be a very difficult stock pickers market with very few companies.
Advice – SIP investment if longer term. Avoid for short term.
Most likely shorting opportunity for a 15% fall is around Feb-March.
After that, get into metals (Hin zinc, Hindalco) and oil (Reliance) as the best betw for 2011. FMCG: steady.
IT: steady.
Infrastructure: steady.
Pharma: upwards.
Bonds: Chances of falling price high ~100%.
Rates might move to around 9% at least in 2011.
Advice: Avoid Bond funds totally (except liquid and FMP). Wait for March for maximum of the expected rate rises to be factored in before getting into FD/FMP.
Commit 90% of capital to fixed return for best returns, unless following a bigger asset allocation plan.
Gold: Chances of 10-15% rise very high around 90%. Invest 10% of capital
Rupee: Likelihood of steady state ~60%. Chances of rise by 10% around 10% based on USD weakness. Chances of 10% fall of around 30% because of high inflation in India.
Economy: Should grow at 8-9%
Crude: Should show upward bias. If Rupee remains constant as expected, then based on dollar rates should rise 5% which translates into probably 3-4 Rupee rise in petrol and 1-2Rs rise in Diesel. If 30% chance of Rupee falling 10% comes about, then Petrol rise of 6-7 Rs and Diesel of 3-4 Rs. So a miniomum rise of 5% is almost inevitable
Inflation: Will move upwards. Food inflation is probably over. Commodities i.e metals and crude will rise and contribute most to inflation
Politics:
I expect the current chaotic misgovernance of Congress to continue.
I expect Pranab, who is a shrewd finance minister to have no more fiscal profligacy, which is essential for inflation control. Because of his record over last 1 year, I think inflation will taper towards end of 2011.
Jairam Ramesh will probably face stings/ exposures and will be forced out.
BJP shows no signs of growing up.
Crucial year for Mayawati – if she delivers some big things in this year, she will win the next election. Most likely big event should be opening of the Yamuna expressway and sudden announcement of some big projects along it. An airport or two would also be important – she should grandstand for a big fight with center for airport issue.
Chances of Karunanidhi dying and political chaos in Tamil Nadu.
RE: Downward bias.
NOIDA: Expect large scale abandonment of projects in NOIDA because of metals and cement price inflation. Buy only in under construction/finished products in NOIDA. NOIDA prices will be steady with upward bias, because prices already very low.
Gurgaon: Expect poor sales in recent launches – avoid booking for quick re-sale of booking.
Prices will be steady for 2011 with downward bias for plot prices.
Kundli: Expect 10-15% correction. If bought for short term in 2010 middle this is the selling time
Faridabad: Expect 20% price correction in plots. Again, now and the previous 2 months were best time to sell as in Kundli
Daruhera, Bhiwadi: No resales will be possible. People will have to wait for 3-4 years to sell plots.
Small town India: Steady prices with upward bias
Mumbai: Steady prices 50% chance, Fall in price by 20% likelihood of around 50%
Pune: Steady prices with slow construction and poor sales in new launches.
Chennai: Steady
Bangalore: Steady with upward bias of maybe 10-15%.
Kolkata: Doldrums until election results are out.
Invest in RE in 2011 if
Own use only, avoid investment in RE
Part of larger asset allocation plan for 30% in RE. 2009 was the best time to book in new project, avoid it now
If allocating fresh capital, go only for finished products or under construction projects.
Before making any predictions for 2011, I would first like to make some long term predictions.
Usually these are supposed to be easier to get right than short term predictions, but let us see.
Predictions are from 2010 to 2050. All dollar values in current value not inflation adjusted.
Economy:
USA: I expect the USA to go into a fairly long term low production growth situation. Having peaked at $45000 per capita GDP per annum, I expect much slower growth of maybe 0.5% per annum in productivity. Total productivity rise can only take place with increasing population of immigrants who will be less productive than the mean – so productivity per capita should fall even if the total GDP rises. This means Americans will be progressively less wealthy and will fall to meet the rising East Asia.
I am failing to see the kind of innovations from 1980-2010 in computers, telephony and internet which transformed society. I don’t think there is any such enormous technological shift in the near future which increased productivity drastically. USA will remain a 15 trillion economy till 2050, unless they encourage massive migration
Europe: I anticipate steady state. Productivity will be dependent only on the aging phenomenon and demographic shifts. Productivity of 6 trillion in Germany, 4 trillion in UK, France and Italy each. Probably 20 trillion in whole of Europe put together.
Japan: Status quo. 4 trillion economy
Korea, Taiwan, Singapore: Will reach developed country status of 45000 dollars per capita very soon. Total economy will grow because of younger population and will flatten trajectory by 2030. Probable economy size of South Korea would be 4 trillion, Taiwan 2 trillion.
Indonesia, Malaysia, Tailand: Will accelerate productivity growth to reach Korea levels in next 20 years and by 2050, Tailand and Malaysia at least should have reached 45000 levels (or whatever level inflation adjusted). Which means Indonesia 5 trillion, Malaysia 5 trillion, Thailand 3 trillion $.
China: Currently at 4000 dollars, it may rise to 8000 by 2020, 15000 by 2030 and mean productivity of 25000 per capita per annum is possible by 2050. It will be a massive economy and supreme super-power. Probable size of economy 30 trillion.
India: I anticipate a lot of struggle to rise.
It is the only economy facing multiple hurdles and suffering from stupidity on a massive scale, with inability to learn modern ways. Currently it is at 1000 $ per capita per annum. With insufficient infrastructure and training, will reach 2000 $ per capita by 2017 assuming 9% growth, which is by no means certain.
India is facing massive government failure and economic failure, given the speed with which every other economy is racing ahead. The capable elite in India is prevented from leading the country by disenfranchising the educated population, unsustainable taxation levels which kill growth and encourage low grade parallel economy in black. The current population of 15 million elites, who were released from shackles in 1992, have propelled the last 2 decades of growth, with current ptoductivity of around 20,000$. Their numbers have failed to reach critical mass. They will probably double in the next 10 years to 30 million, since the population is young and 1 to 2 children from each family will be added to the productive population, along with slow accretion from the lower classes. The rest of the population currently consists of 150-200 million at 2000 $ per annum and 800 million at 500$ per annum.
Much of India’s growth is going to come from movement of an unpredictable number from 500$ per annum to 2000$ per annum and beyond to 3-4000$ per annum.
By 2020 one can expect the 2-3000$ producing workers to increase to around 300 million, 4-500 million by 2030 and 1000 million by 2050. Best case scenario for per capita productivity gain is 2000$ by 2017, 4000$ by 2025. I actually expect 8000$ in 2050, because I anticipate problems which would prevent doubling every 7 years. Which means probable size of economy is 8 trillion.
However, if India overcomes its problems, it could reach 15000$ per capita by 2050 and a 15 trillion economy, which would be a best case scenario.
However, please note that a 500 to 5000 $ productivity transition is twice as good as a 5000 to 25000 transition and five times better than a 25000 to 50,000 transition and is a much better business opportunity because the unconsuming become consuming rather than already consuming upgrading their consumption. So for businesses, India is the best
Russia, Brazil: Currently at 10,000 per annum, should reach 45000 by 2050, matching developed country. So they will be some 8-10 trillion each.
Politics
USA: It is likely to see marked shifts in focus in internal and external politics.
The total growth of population being needed for increase in economy size, there will be marked fights between the right and left on immigration. Currently, with underemployment, we are likely to witness a prolonged shift against immigration, until the excess unemployed workforce gets employed again. Since currently democrats are in power, they are likely to shift to right against immigration for the next election. As a repercussion, a fairly prolonged 5-7 year anti immigration wave is likely. If democrats win re-election, the anti-immigration will be overturned as soon as the economy recovers, maybe by 2014. If republicans win in 2012, the anti immigration is likely to continue till 2016 re-elections are over. After that, both parties would encourage immigration on a fairly large scale.
Lower paid workers would be needed for the infrastructure upgrades, health care and nursing for elderly. Mexico is currently at 10,000$ per capita. By 2016 this should be close to $15,000.
Infrastructure of Mexico is much better than India and there is no real incentive for richer Mexicans to go to USA where they will be looked down upon as “illegals”. Same may be the case with east Asia, where incomes and productivity will reach developed country levels soon. So I expect that only the poorest grade of workers would come from Mexico to USA, largely illegals.
USA will also encourage the best workers to immigrate there. Since most of East Asia would be close to attaining productivity of 40-45000$ per annum on their own, in all probability, Indians, currently stuck at 20,000$ productivity and salary would be the most likely to emigrate to USA. Within a few years, there is likely to be massive migration of highest grade of Indian workers to USA, maintaining the trend seen over the last 2 decades. Doctors, IT workers, Managers and Finance pros are the most likely people who might migrate to USA. Where they can shift from $20,000 to $60-80,000 paying jobs and more. They will also have the attraction of much better infrastructure, law and order, lack of corruption, health care and no chaos.
In other internal politics, democrats will try to increase taxes to pay for health and elderly care, but that will lose elections.
Also, democrats don’t have children whereas right wing republicans have lots of children, increasing their voter base.
The only quick fix is to import doctors, nurses (Philipinos and Latinos) and cleaners/construction workers (latinos). They will also have to reduce the doctor and nurse pay – currently 200,000 and more per annum / 45,000 per annum. This is likely to further reduce the incentive for whites to undergo prolonged training and difficult working conditions.
In international politics, USA will try to maintain its pre-eminence by a few tactical strikes.
There are two main strategic goals for USA. One is to prevent Iranian oil and Ex-USSR republics oil from being piped to China, without at the same time encouraging massive terrorist strikes in retaliation. Second is to encircle China.
Currently, USA is encouraging Ex-USSR oil republics to pipe oil to India and Pakistan. It is in our interest to cooperate in this, possibly using US capital for it.
Once this is in place, USA will probably encourage Israel to carry out air strikes in Iran nuclear sites. Iran will probably retaliate by trying to bomb the USSR-India pipelines and other US assets, which will give USA the excuse needed to effect a regime change in Iran. Once in control of Iranian oil, it will again try piping the oil to India through Pakistan.
Its policy of encirclement of China should see USA encourage India to have more border disputes with China, encourage India to be permanent member of UN – (the latter only if India stops being stupid and learns how to play the great game, which currently it does not), and engaging with Bangladesh to counter Chinese presence in Chittagong and to discourage Muslim extremists there. It may also try to boost tourism in Nepal and Tibet. It will probably leave Taiwan and North Korea alone, since China has given nuclear weapons to N Korea to deter USA (same as with Pakistan).
Once US economic situation improves, it is likely to target Chinese economy by trade wars.
China is probably trying to counter these moves in many ways. First by scaring India from being a partner with USA in these by war mongering. Second by using Indian communists as a fifth column sabotaging these efforts. Third by building its own oil pipeline from Baluchistan to China, which can then be linked to both Iran and Ex-USSR oil. Fourth, by encouraging North Korean belligerence and using the threat to peace as a bargaining counter in preventing US attack on Iran and reducing the efficacy of US encirclement of China. It will also increase presence of Chinese navy in Chittagong, Rangoon and Columbo ports. There is a possibility of China Iran military pact with stationing of Chinese forces in Iran to prevent Israel or US attacks. Fifth, China is busy reducing its reliance on US economy and is in a race to see whether US recovers first or China reduces dependence levels first.
All Indications are that Chinese efforts have been superior to USA and it will win the strategic battle.
India has shown itself to be a bad friend to USA and too unreliable for any real push from USA in these tactical and strategic goals.
Europe and Japan are likely to partner USA in these efforts, all of which require Indian cooperation for any bite.
By 2015 I expect the Iran situation to spin out of control, which will coincide with an oil super spike, if and when it happens.
By 2020 I expect China to win the supremacy battle with USA and massive recruitment of its population in a wordwide army stationed in strategic positions in South America, Africa, Middle East and Asian trouble spots.
USA will join battle and there will be a re-emergence of a cold war for world domination. Unless India joins in the battle on the side of the Whites, China will probably win the war, since its economy is in shape unlike USSR was.
China: Apart from its counter moves to US actions (US moves which appear quite constrained and limited, US seems basically helpless) China will be going full force in building a massive entente against the US led West.
Its main partner will probably be Russia. Russia plus China is a most dangerous combination and US will counter this by probable alliances with EX-USSR republics like Khazakhstan. They will probably fail and a massive Asian entente of Iran, Central Asia, Russia on one side and China on the other side consuming their output seems likely.
China will also build up its Navy and engage with Brazil, Argentina and other South American and African countries.
In its internal politics, China will probably keep succeeding as long as it is able to run its economy properly. Its efforts in the last 2 years have been masterly – possibly they understand economics and politics better than even Anglo Saxons. Whenever Chinese economy falters, chances of robust diplomacy/ war is likely to increase.
India. India faces complete political failure.
Our leaders are ineffective both in Congress and BJP.
Alternatives in BSP, SP and Communists are probably downright anti-national and economically suicidal.
Improvement in political leadership requires reform in Congress and BJP. Both seem currently incapable.
Long term change will probably require a complete breakdown to happen – either war with Pakistan/China, a massive Maoist rebellion or complete economic breakdown. Of these, war would be the most welcome alternative. Complete economic breakdown will probably not result in reforms and would be counterproductive, leading to a failed state and widespread chaos.
Internal: Congress is likely to initiate big reforms and elimination of corrupt and old people. It is more likely to succeed than BJP, whose efforts so far have been laughable.
I anticipate emergence of Arun Jaitly and Sushma Swaraj as the new leadership at center and dwindling of the rest. Possibility of Nitish Jumar as PM is possible if these prove ineffective in next 3 years and if Nitish proves effective. BJP will have to shed its old fashioned fuddy duddy image and become more modern if it is to succeed. If BJP loses next 2014 election it is likely to emerge stronger later on.
Congress needs massive modernization, which it has so far shown great reluctance to do. A lot depends on Sonia’s next move for the party. Long term over the next 40 years, the main trend is likely to be atrophy of regional parties and strengthening of large central parties i.e. Congress and BJP.
The period of breakway and small parties seen from 1990 to 2010 is likely to reverse direction slowly over the next 10 years and gain momentum.
By 2025, I expect disappearance of BSP and SP.
DMK and AIADMK will have to give up opportunistic alliance and chose sides with either BJP or Congress on long term basis and give up a lot of political space to these parties.
UP, MP, Maharashtra, Karnataka and AP are likely to see subdivisions into smaller states.
If India has to prosper, there has to be planned urbanization and setting up of city states. I expect our politicians to fail in delivery of this, which will lead to emigration of the best talent out of the country.
In foreign policy, extreme stupidity and inability to side with the Anglo saxon world will continue.
Pakistan: I expect a status quo in Pakistan which will play off China against USA without taking sides. In case of war between India and China, it is likely to launch an opportunistic attack on Kashmir. It is likely to be a big beneficiary of the oil economy from Iran and Central Asia if it plays its cards right – currently it is being stupid. Ideally it should seek massive investments in oil and oil based manufacturing by getting rid of the terrorists and taleban etc. So far, it has shown as much stupidity as India in making right economic moves. Its political leadership has failed the Pakistani middle class which is larger than India, wealthier and better educated, when seen in percentage terms of total population vis a vis India.
·Demographics.··Chinawill reap the demographic dividend of population control by the simple expedient of deserting its old and infirm and focusing on the young, its future. It will simple allow the old people to die and not worry overmuch about their standard of living. This is a big difference between China and the West, the latter being forced to look after its old. By this simple method, China will overcome the overhang of aging population and march ahead. ··USA will face a slow graying of its population. Baby boomers will become old all of a sudden just 10 years from now and will live into their 90s, putting strain on its economy. Growth in economy will have to come from immigration.
Russia will continue to dwindle in numbers even as its population gets much wealther, same as Eastern Europe.
India will face large scale political disruption as its young population gets impatient with the stupidity of its political leadership. However, every youth succeeding in politics will be corrupted and will fail to deliver anything, this being our national tendency. Real leadership will only come from the 50 something generation – when they realize that our restive population is asking for a change from current corrupt ways, they are likely to effect a change.
Arun Jaitly and Sushma Swaraj seem the only possible leadership which might emerge, who have sufficient intelligence to transform India to suit its young population’s requirements. If the stupid BJP leadership does not recognize their intelligence and continue with idiots like Gadkari, their party will fail completely.
Congress is likely to look for leadership from Rahul. If he fails them, their current anachronistic chaotic party system will also fail. Although Rahul is dumber than most other politicians, he has sufficient support from the party and people – just like Rajiv Gandhi – and is likely to be asked to take over the party with in the next 5-6 years. If he waits longer, he will fail and his party will go into terminal decline.
It is impossible to predict longer than the next 10 years for India because unlike China and USA, where there is effective leadership and stability of thinking and social movements, in India, everything depends on both our parties effecting life saving changes. If they fail in the next 10 years, India will fail as a state and is likely to break up, helped by China, Pakistana and Maoists/Communists
·Weather: The latter part of 19th and whole of 20th century has been exceptionally benign from extreme weather. This window period is now over and the world will return to extreme vagaries of nature in the next 40 years. Anything predicated on good weather – like Indian and Chinese farming practices, will face stress and this is likely to be one of the big negatives for the increase of Indian productivity upgrade above 500$.
·Stocks. India is in a long term bull phase which will last for 50 or more years. There will be cyclical patters within this, but the growth chart will be like the Dow from 1930 to 2000.
China will be similar or even better.
Europe and USA will be flat or show 2-3% growth – any growth higher than this will come entirely from the operation of multinationals.
Russia and Brazil will be the best performers and will rise meteorically. ·
RE. India and China are both in a fantastic long term bull phase.
India will perform better than China because it will be more inefficient in its urbanisation. Any efficiency like the coming of the RE regulator, improvement in land use laws, improvement and computerization etc will initially cause a small term downtrend for a short period which will be followed by a massive upmove as more and more people enter the RE consumption place. Again, India will be dominated by the first time buyers while China will be dominated by the upgraders from small 2BHK (current Chinese all families have 2BHK of 600-1000sf, from which they will shift to 4BHK 2000-2500 sf carpet area which is the norm for developed nations.
USA will depend entirely on immigration for its growth and for the next 20 years one should expect static markets.
Europe will be static.
Brazil will grow while Russia will be a declining market.
Basically RE growth/decline will be based on demographics.·
Bonds: As we recover slowly from the economic crisis, expect rise in bond yields to around 5-6%. Rates will rise all over the world and will be linked to inflation. Robust central bank actions will be increasingly perceived as deleterious to the economy and the trend to have too many rate adjustments will decrease. Within 10 years, inflation control will become the main purpose of central banks and not growth stimulation. In USA, I expect current low rates to continue for a few years, with slow upward bias. This will change to sharp upward bias when there is sudden and extreme inflation. At that point, there will be a crash in the bond market and rates will probably reach 8%. Europe will be similar with more stabe rates than USA. China and India will have corresponding changes too – so in India, rates of 15-17% can be expected when US rates become 8%. Probability of this happening is high in the next 10 years. After this round of rate increase, the rates are likely to stabilize around 5-6% for the long term and same will happen in India.·
Gold. This will be highly volatile. Its value will be in focus for the next 10 years. After that when world returns to stability with steady bond rates, gold will lose its value. Within 20-25 years, it will lose its status as a proxy for money and prices will decline to its production value and consumption value as jewelery. It is unlikely to return to favour for the rest of this century, because a lot of people will have observed its behaviour and would have learnt its ways and would have also burned their hands.
Gold is the classic speculation – something of no value being bid up in price based entirely on the greater fool theory. Those who are stuck in it last – when the gold bubble bursts, will never again return to this metal and will warn all future investors against it.
However in the near future, gold will be one of the best repositories of value – as we wait for the economy to recover and the rates to rise suddenly. Everyone in gold is basically waiting for the sudden global inflation event, as the QE and rate lowering across the world finally finishes. After this inflation event, which will last for 2-3 years and even more in some countries like India, gold will collapse. The better one times exit from gold, better ones returns – selling at the last possible moment before collapse will deliver fantastic returns, sudden crash will wipe out a lot of gains. Since every bubble has many bull market corrections, it will be a difficult to ride this upmove, but basic allocation to gold is essential until the inflation even is behind us.
·Education. The price of education will fall in USA as earning capacity will become more constrained. The difference between the intelligent and highly trained getting 200,000 and more $ per annum versus the stupid and untrainable who will earn 25000 $ per annum will widen. Many Americans in low paying jobs will find that they are better qualified and capable than many in the Asian economies who are less efficient and earn better – these whites will increasingly take up jobs in BRIC countries, which will limit the amount of salary increase one can possibly get in BRIC. In India, tose earning around 25000$ i.e. 1L per month will find that their future growth prospects are being dimmed by whites taking away job opportunities in the 75000$ per annum range i.e. 3-4L per month. The west will lower the bars for education in medicine, currently 12-14 years of training, making it easier for whites to enter medicine in the general practitioner level. Probably, they will make it 8 years of training. This will probably limit the number of Indians who enter medicine in West. General pay for doctors will also fall to 200,000 dollar levels.
In other fields, the entry barrier for education leading to high paying jobs will widen. Initial investment in education for engineering and technical fields will increase to around 150,000 dollars for jobs paying over 100,000 dollars per annum. This will greatly restrict the field for those who are less talented and are unproductive i.e. most lawyers and finance executives, whose pay will decrease and also the entry fee for management education and law education will fall.
Computer will be the top field after medicine in USA, followed by other engineering fields.
In India, focus will shift to better organized fields for education. Engineering and software will be top followed by manufacturing. Management will slowly fall in value as management skills improve across the population regardless of training.
Medicine will see chaos because of the current reservation policy and is unpredictable what will actually happen.
Long term, there will be shift from govt sector to private medical colleges, but fees will fall as earning capacity and capacity to deliver good medical care will slowly come into focus. Regulation of the medical field is likely to improve but only after a widespread failure event.·
Wars. In the long term , all wars will be resource wars. War over oil access is likely to be a cold war between China and USA. War over water access is likely to be border wars between India on one side and China, Nepal, Bangradesh and Pakistan on the other.
PROBABILITIES IN LONG TERM PREDICTIONS
Probablity:
Long term ecomomic direction:
USA static picture with immigration determinant ~ 100%
China rising to 25,000$ production by 2050 ~ 100%
All other countries ~ 100%
India rising to 8-10,000$ by 2050 ~ 50%, main limitation is weather, wars and Maoism/govt failure
Best place to invest: China, Brazil, Russia.
Best possibility of higher return with high risk high reward scenario:India
Wars:
Cold war with China and USA ~100%
Hot war action by USA ~5%
Hot war action by China depends on economic slump.
Since long term rise of China is likely to be marked by many market corrections, every major downturn will increase the risk of hot war from China.
Risk of one Chinese war ~20%. Tisk of second and many wars if one war has already taken place ~100%.
So peace on earth is mainly determined by China rising peacefully and not initiating the first war.
Risk of India having a war with one of its neighbors in next 50 years ~ 50%.
Risk of India China war ~5%,
Risk of India Pak war ~40%,
risk of military action on Nepal and Bangladesh border 5%.
Any India was other than with China will showcase the futility of war and will probably reduce incidence of second war.
Reasons for predictions : We have had 5 wars in last 60 years. Current neighbors more unfriendly than before. Chances of govt failure being percieved as complete collapse of India govt are high. Probable time frame for war is around the time of the extreme inflation event which as anticipated might transpire in 5-6 years time.
Demographic predictions: ~100%
RE for India:
Bull phase for 50 years ~100%.
Following of 7-8 year RE cycle ~100%.
Since previous bull phase of 2004-2008 was extra-ordinarily strong, next bull phase in 2014-2018 is likely to be weak.
However, in caser this RE bull phase coincides with the anticipated hyper inflation event, there will be combined increase in price drastically combined with economic turbulence – so there will be combined high rates and economic chaos preventing new release of vacant property combined with extreme price volatility. It will be very difficult to be able to buy property in this scenario. It is therefore better to complete one’s planned acquisitions before these events transpire. Once we cross this inflation and turbulence event, likely to be over definitely by 2020, once things settle down, one can buy better quality RE with better inflastructure in tranquility. Those planning to buy should buy now or hold their peace for 10 years, wait out the turbulence and then buy. The next bull phase is likely to be quite risky and difficult time to buy.
Gold ~50% chance of things happening as predicted. Other 50% chances are that gold collapses much before massive rise (25%) and gold becomes defacto currency because of widespread currency failures and wars (5%) and that gold maintains current status quo bull phase for extended periods over 50 years (20%)
Predictions for 2011 for India:
Stocks
Chance of a 10-15% correction very high ~70%.
Chance of status quo at nifty 6000~ 20%.
Chance of a upmove to Nifty 6500-6700 ~ 10%
Chance of big upmove to Nifty 7000 ~ 5%.
India will be a very difficult stock pickers market with very few companies.
Advice – SIP investment if longer term. Avoid for short term.
Most likely shorting opportunity for a 15% fall is around Feb-March.
After that, get into metals (Hin zinc, Hindalco) and oil (Reliance) as the best betw for 2011. FMCG: steady.
IT: steady.
Infrastructure: steady.
Pharma: upwards.
Bonds: Chances of falling price high ~100%.
Rates might move to around 9% at least in 2011.
Advice: Avoid Bond funds totally (except liquid and FMP). Wait for March for maximum of the expected rate rises to be factored in before getting into FD/FMP.
Commit 90% of capital to fixed return for best returns, unless following a bigger asset allocation plan.
Gold: Chances of 10-15% rise very high around 90%. Invest 10% of capital
Rupee: Likelihood of steady state ~60%. Chances of rise by 10% around 10% based on USD weakness. Chances of 10% fall of around 30% because of high inflation in India.
Economy: Should grow at 8-9%
Crude: Should show upward bias. If Rupee remains constant as expected, then based on dollar rates should rise 5% which translates into probably 3-4 Rupee rise in petrol and 1-2Rs rise in Diesel. If 30% chance of Rupee falling 10% comes about, then Petrol rise of 6-7 Rs and Diesel of 3-4 Rs. So a miniomum rise of 5% is almost inevitable
Inflation: Will move upwards. Food inflation is probably over. Commodities i.e metals and crude will rise and contribute most to inflation
Politics:
I expect the current chaotic misgovernance of Congress to continue.
I expect Pranab, who is a shrewd finance minister to have no more fiscal profligacy, which is essential for inflation control. Because of his record over last 1 year, I think inflation will taper towards end of 2011.
Jairam Ramesh will probably face stings/ exposures and will be forced out.
BJP shows no signs of growing up.
Crucial year for Mayawati – if she delivers some big things in this year, she will win the next election. Most likely big event should be opening of the Yamuna expressway and sudden announcement of some big projects along it. An airport or two would also be important – she should grandstand for a big fight with center for airport issue.
Chances of Karunanidhi dying and political chaos in Tamil Nadu.
RE: Downward bias.
NOIDA: Expect large scale abandonment of projects in NOIDA because of metals and cement price inflation. Buy only in under construction/finished products in NOIDA. NOIDA prices will be steady with upward bias, because prices already very low.
Gurgaon: Expect poor sales in recent launches – avoid booking for quick re-sale of booking.
Prices will be steady for 2011 with downward bias for plot prices.
Kundli: Expect 10-15% correction. If bought for short term in 2010 middle this is the selling time
Faridabad: Expect 20% price correction in plots. Again, now and the previous 2 months were best time to sell as in Kundli
Daruhera, Bhiwadi: No resales will be possible. People will have to wait for 3-4 years to sell plots.
Small town India: Steady prices with upward bias
Mumbai: Steady prices 50% chance, Fall in price by 20% likelihood of around 50%
Pune: Steady prices with slow construction and poor sales in new launches.
Chennai: Steady
Bangalore: Steady with upward bias of maybe 10-15%.
Kolkata: Doldrums until election results are out.
Invest in RE in 2011 if
Own use only, avoid investment in RE
Part of larger asset allocation plan for 30% in RE. 2009 was the best time to book in new project, avoid it now
If allocating fresh capital, go only for finished products or under construction projects.
Tuesday, December 21, 2010
Looking back at 2010 and my predictions
These were my predictions for 2010 (comments in bold):
I wish everyone on this forum a very happy new year.My two cents worth of predictions for 2010:Q1-Q2 2010: US will see recession and a stock market collapse.
Wrong
China will see RE and stock market collapse.
Wrong
Indias stock market will top out by Feb 2010 and will start falling after budget and keep falling throughout rest of 2010.
Wrong
RE prices in India will stop rising and there will be few sales after budget. New launched projects will stall. Prices will stay steady or dip 5-10% (in affordable apts) or 10-20% in luxury apts.
Partly correct, partly wrong. 2009 was the best time for RE. Although prices did not fall, they rose only a little in 2010, except in Gurgaon where they rose a lot.
Gold will rise 20-40% in dollars (1400 per ounce)
Bang on target!!! But I did not anticipate QE-2, so my reasons were wrong for this gold price rise
Q3-Q4 2010: We will see Shanghai 2000, Dow 8000, Sen 12000.
Wrong
Commodity prices will collapse. Metal stocks will do badly (exit by Q2).
Wrong
Gold might slowly fall, but I am not sure - might keep rising - unpredictable.
Mostly right
RE companies will face fresh liquidity problems as interest rates will rise.
Correct
There will be no more buying in RE.End 2009 marks the end of lift in RE sales and prices, reflecting pent up demand and 6th pay commission arrear related sales.Fresh launched projects of Dec 2009 will see no sales and will take a long time to build too.
Wrong
The phony recovery will be over in 2010 and the return of bear markets and recession seems unstoppable
Wrong
I think Dow will fall for the next 20 years. I expect it to fall 20% in the next 6 months, rise and then then keep falling with lower tops and bottoms for maybe 3 years. It will go to sleep in a dungeon after that.In real terms, Dow will fall more. Because of inflation, which will keep the dollar price for shares at the same level even as poor economy will lower share value, nominal Dow will fall less. There is a possibility that US might go into a deflationary spiral. But I am not at all sure, gut tells me stagflation. In US RE, I am sure of 20 years deflation though.Short term interest rates will be kept as low as possible by the fed. Its a delicate balance. US fed action will be ineffective, but easing by ECB, China, Brazil/Russia (bothered by falling commodity prices) will prevent global deflation.Stagflation is my bet.
Remains to be seen
India will see higher interest rates and high inflation (no deflation in India, I am 100% sure).
Correct
We are the only country without overcapacity in anything (RE included).USA has many million homes more than number of households (1.8 million or 18 million empty houses from what I remember. Anyone have exact data?). China has no slums - it also has more homes than households, although many are two room hovels (better than juggi). These homes are all that the Chinese can afford though - they cant afford to live in the palatial flats they have built. Banks which have financed Chinese RE will go belly up. Most Chinese banks are now Zombies, people just havent seen the dead eyes of the zombie yet, that is all.
Remains to be seen
Despite low fed short term rate, bond yields will go up.
Partly correct - after QE2, bonds rose to 2.5%yield, then crashed to 3.5% yield or so currently
Idiotic 401 K investors who sold stocks after the crash and went into bond funds will lose half of their capital values, as yields will double.
Many made good money as yields fell
Americans have been total idiots this decade.
Maybe not
They have fled to the safety of treasuries through bond funds - a good trade when fed was lowering, a really bad investment to hold as rates rise, no safety there at all! Total total idiots. I expect them to watch their 401k fall further as bonds crash, then exit bond funds after they have taken their fall, shift to equity which will shore up values for a while in 2010 and early 2011 and then stare at further erosion as their shares in broken companies yield nothing.Americans are so badly screwed, so solidly screwed.
Americans are a lot less stupid than what the world gives credence to them
Their capital (of 50 years of work) is now burnt to ashes. The baby boomers have crapped on their dinner plate.
Maybe not
Equally doomed are Indian IT and other outsourcing ventures. Stay away from their stocks.
Wrong
I base all predictions on gut feeling, on data absorbed here and there on the internet. Nothing more. I am not an analyst, I am a consumer of analysisSo Wiseman, 8000 is a guesstimate. Could be 6400 too. But I prefer 6400 for 2012, 4000 for 2015 for the Dow.
How wrong!!!!!
There can be no more bailouts. Not possible, USA is bust. The more it prints, the more US pensioners will get screwed and blame Obama for it. No way Obama will print more money, not if he wants to win the next election.
And yet, he printed in QE2 and so far the economy has responded to its medicine.
In any case, Obama will lose the next election. He is going the way of Jimmy Carter.
Let us see.
Self analysis : MAN, was I wrong!!!!!!I got almost everything wrong. USA managed to survive, Indian stocks went up further rather than down.Only two things I managed to get right. One - that gold would go up, maybe to 1400dollars. That came true but for the wrong reasons!!! It went up because of QE2 and now the expectation of QE3. It did not rise because of the reasons I gave a year ago.Two- My prediction that India would have inflation was actually not a prediction, but a statement of the status quo maintaining - since we already had inflation in 2010 beginning. SO I dont claim victory for this either. This is the reason why all mutual funds and their managers behave the same way - because the average status quo prediction is likely to be right. Like predicting good monsoon means you will be right 6/7 times, just because those are the long term odds.
I thought US treasuries would crash. They did - but after rising to a yield of 2.5% - which I did not predict.
Basically, I never thought US fed would do QE-2. It caught me by surprise. Everything else - gold, bonds, Indian stocks, Indian RE - is consequent upon that.
Most middle of the road predictions turn out right. Most extreme predictions turn out wrong. However, I still maintain my ADVICE part (in later posts on this thread and elsewhere). Which are
1. One should diversify wealth in RE in addition to stock bonds and gold.
2. For own use, dont time.
3. Buy only what you afford and dont leverage - either avoid completely or at worst, dont leverage for more than 50% of the flat cost and 25% of your take home pay.
I myself invest on these principles.
My FEAR - that was what my prediction was.
I used that prediction in only one way though - I booked an under construction project than one where there was no construction at all, or a plot. I might have made better profits if I had taken a risky bet in Gurgaon, or bought a plot, but I decided to forgo that risky bet and go in for something very very safe. My returns were correspondingly smaller.
But better safe than sorry. I have no regrets. One does not take unnecessary risks with big money.
Similarly, in March 2009, I judged the stock market to be too risky. I thought real estate was the better bet and went with it. I again have no regrets that I missed the opportunity of a lifetime.It was too risky - and a risky bet is never worth it.
And my current and only take home from this year is this:
Predictions can be wrong. But decision making has the purpose of taking the best possible decision given the circumstances.So although all my predictions were wrong, I still stand by all my decisions.Let us see what time does to my decisions - whether they stand the test of time or fall by the wayside like my predictions.
I wish everyone on this forum a very happy new year.My two cents worth of predictions for 2010:Q1-Q2 2010: US will see recession and a stock market collapse.
Wrong
China will see RE and stock market collapse.
Wrong
Indias stock market will top out by Feb 2010 and will start falling after budget and keep falling throughout rest of 2010.
Wrong
RE prices in India will stop rising and there will be few sales after budget. New launched projects will stall. Prices will stay steady or dip 5-10% (in affordable apts) or 10-20% in luxury apts.
Partly correct, partly wrong. 2009 was the best time for RE. Although prices did not fall, they rose only a little in 2010, except in Gurgaon where they rose a lot.
Gold will rise 20-40% in dollars (1400 per ounce)
Bang on target!!! But I did not anticipate QE-2, so my reasons were wrong for this gold price rise
Q3-Q4 2010: We will see Shanghai 2000, Dow 8000, Sen 12000.
Wrong
Commodity prices will collapse. Metal stocks will do badly (exit by Q2).
Wrong
Gold might slowly fall, but I am not sure - might keep rising - unpredictable.
Mostly right
RE companies will face fresh liquidity problems as interest rates will rise.
Correct
There will be no more buying in RE.End 2009 marks the end of lift in RE sales and prices, reflecting pent up demand and 6th pay commission arrear related sales.Fresh launched projects of Dec 2009 will see no sales and will take a long time to build too.
Wrong
The phony recovery will be over in 2010 and the return of bear markets and recession seems unstoppable
Wrong
I think Dow will fall for the next 20 years. I expect it to fall 20% in the next 6 months, rise and then then keep falling with lower tops and bottoms for maybe 3 years. It will go to sleep in a dungeon after that.In real terms, Dow will fall more. Because of inflation, which will keep the dollar price for shares at the same level even as poor economy will lower share value, nominal Dow will fall less. There is a possibility that US might go into a deflationary spiral. But I am not at all sure, gut tells me stagflation. In US RE, I am sure of 20 years deflation though.Short term interest rates will be kept as low as possible by the fed. Its a delicate balance. US fed action will be ineffective, but easing by ECB, China, Brazil/Russia (bothered by falling commodity prices) will prevent global deflation.Stagflation is my bet.
Remains to be seen
India will see higher interest rates and high inflation (no deflation in India, I am 100% sure).
Correct
We are the only country without overcapacity in anything (RE included).USA has many million homes more than number of households (1.8 million or 18 million empty houses from what I remember. Anyone have exact data?). China has no slums - it also has more homes than households, although many are two room hovels (better than juggi). These homes are all that the Chinese can afford though - they cant afford to live in the palatial flats they have built. Banks which have financed Chinese RE will go belly up. Most Chinese banks are now Zombies, people just havent seen the dead eyes of the zombie yet, that is all.
Remains to be seen
Despite low fed short term rate, bond yields will go up.
Partly correct - after QE2, bonds rose to 2.5%yield, then crashed to 3.5% yield or so currently
Idiotic 401 K investors who sold stocks after the crash and went into bond funds will lose half of their capital values, as yields will double.
Many made good money as yields fell
Americans have been total idiots this decade.
Maybe not
They have fled to the safety of treasuries through bond funds - a good trade when fed was lowering, a really bad investment to hold as rates rise, no safety there at all! Total total idiots. I expect them to watch their 401k fall further as bonds crash, then exit bond funds after they have taken their fall, shift to equity which will shore up values for a while in 2010 and early 2011 and then stare at further erosion as their shares in broken companies yield nothing.Americans are so badly screwed, so solidly screwed.
Americans are a lot less stupid than what the world gives credence to them
Their capital (of 50 years of work) is now burnt to ashes. The baby boomers have crapped on their dinner plate.
Maybe not
Equally doomed are Indian IT and other outsourcing ventures. Stay away from their stocks.
Wrong
I base all predictions on gut feeling, on data absorbed here and there on the internet. Nothing more. I am not an analyst, I am a consumer of analysisSo Wiseman, 8000 is a guesstimate. Could be 6400 too. But I prefer 6400 for 2012, 4000 for 2015 for the Dow.
How wrong!!!!!
There can be no more bailouts. Not possible, USA is bust. The more it prints, the more US pensioners will get screwed and blame Obama for it. No way Obama will print more money, not if he wants to win the next election.
And yet, he printed in QE2 and so far the economy has responded to its medicine.
In any case, Obama will lose the next election. He is going the way of Jimmy Carter.
Let us see.
Self analysis : MAN, was I wrong!!!!!!I got almost everything wrong. USA managed to survive, Indian stocks went up further rather than down.Only two things I managed to get right. One - that gold would go up, maybe to 1400dollars. That came true but for the wrong reasons!!! It went up because of QE2 and now the expectation of QE3. It did not rise because of the reasons I gave a year ago.Two- My prediction that India would have inflation was actually not a prediction, but a statement of the status quo maintaining - since we already had inflation in 2010 beginning. SO I dont claim victory for this either. This is the reason why all mutual funds and their managers behave the same way - because the average status quo prediction is likely to be right. Like predicting good monsoon means you will be right 6/7 times, just because those are the long term odds.
I thought US treasuries would crash. They did - but after rising to a yield of 2.5% - which I did not predict.
Basically, I never thought US fed would do QE-2. It caught me by surprise. Everything else - gold, bonds, Indian stocks, Indian RE - is consequent upon that.
Most middle of the road predictions turn out right. Most extreme predictions turn out wrong. However, I still maintain my ADVICE part (in later posts on this thread and elsewhere). Which are
1. One should diversify wealth in RE in addition to stock bonds and gold.
2. For own use, dont time.
3. Buy only what you afford and dont leverage - either avoid completely or at worst, dont leverage for more than 50% of the flat cost and 25% of your take home pay.
I myself invest on these principles.
My FEAR - that was what my prediction was.
I used that prediction in only one way though - I booked an under construction project than one where there was no construction at all, or a plot. I might have made better profits if I had taken a risky bet in Gurgaon, or bought a plot, but I decided to forgo that risky bet and go in for something very very safe. My returns were correspondingly smaller.
But better safe than sorry. I have no regrets. One does not take unnecessary risks with big money.
Similarly, in March 2009, I judged the stock market to be too risky. I thought real estate was the better bet and went with it. I again have no regrets that I missed the opportunity of a lifetime.It was too risky - and a risky bet is never worth it.
And my current and only take home from this year is this:
Predictions can be wrong. But decision making has the purpose of taking the best possible decision given the circumstances.So although all my predictions were wrong, I still stand by all my decisions.Let us see what time does to my decisions - whether they stand the test of time or fall by the wayside like my predictions.
Friday, November 19, 2010
On sector 78 NOIDA flat booking
Hi buzz.
Since you are saying you want to buy for own use, the only thing which should influence your decision should be - what can you afford? Are you financially able to make this EXPENDITURE?
For own living, a flat is an expenditure, not an investment. It has to be close to your work place, have decent schools and shops, have good traffic and a decent neighborhood.
I dont know your personal background, but Sector 78 etc are not so well located and essentially belong in the "affordable" category. They dont have the best of everything.
Secondly, poorer quality builders are more frequently found in the "affordable" category. These builders are more likely to cheat, to go slow, deliver substandard construction and also for total abandonment of the project.
Since you are planning to make the biggerst expenditure of your life, going slow is a virtue. Your best option and also for everyone in the 78 and surrounding projects, is to wait for 1-2 years and see which one is nearing completion and quality looks good. Buy in a resale, before registration, but shop around with brokers for 1-2 years to get the hang of the way things work, so that you buy the best possible flat for yourself.
Making a booking in a "prelaunch" etc kind of situation is for RE investors and should not be the modus operandi for an end user. This is for high risk high reward kind of investors and not for people stretching themselves on loan to buy a home for themselves.
MM and SBajaj and others may have made multiple bookings, but none of them are for own use - they are for resale to people like you. They take the risks so that people like you can buy without risk - but they make a profit in the bargain while you pay for safety. They take the risk that job market might collapse and prices of flats dont rise. They take the risk that the builder defaults or gives substandard product. They take the risk that they may not be able to sell the flat for various reasons. Why should you take this risk needlessly? You are making an expenditure and it should be risk free.
Trying to do both together is not advisable, unless you can afford to do so - i.e you have a big salary and dont mind living on rent for prolonged periods and can afford to pay both rent and EMI - in which case, sector 78 is anyway not for you. Killing 2 birds with one stone means you stick to the best builders like 3C or logix etc for new bookings and have enough financial muscle to last rhough extended staying periods. It is unfortunate that a lot of people mix their investment and expenditure.
Just like insurance - it is an expenditure and mixing investment with expenditure is silly. And yet almost every insurance policy is sold as investment - and every flat is sold as investment - which actually affects one's judgement and proper selection.
So yes, I would definitely urge you to only buy nearly constructed flats, before registration and after due diligence. New bookings are risky and not worth it.
Yes, there is some loss of choice in taking over a booking, but not much - almost all projects have investors booking the best and choice flats only, because they know they can get a better price for it. So you will get your choice, provided you pay a few lakhs extra - which is worth it.
Negotiation and timing are the key things - and if you plan to live in a flat for 10-20-30 years, spending a lot of time and effort in selecting the best is well worth it.
Since you are saying you want to buy for own use, the only thing which should influence your decision should be - what can you afford? Are you financially able to make this EXPENDITURE?
For own living, a flat is an expenditure, not an investment. It has to be close to your work place, have decent schools and shops, have good traffic and a decent neighborhood.
I dont know your personal background, but Sector 78 etc are not so well located and essentially belong in the "affordable" category. They dont have the best of everything.
Secondly, poorer quality builders are more frequently found in the "affordable" category. These builders are more likely to cheat, to go slow, deliver substandard construction and also for total abandonment of the project.
Since you are planning to make the biggerst expenditure of your life, going slow is a virtue. Your best option and also for everyone in the 78 and surrounding projects, is to wait for 1-2 years and see which one is nearing completion and quality looks good. Buy in a resale, before registration, but shop around with brokers for 1-2 years to get the hang of the way things work, so that you buy the best possible flat for yourself.
Making a booking in a "prelaunch" etc kind of situation is for RE investors and should not be the modus operandi for an end user. This is for high risk high reward kind of investors and not for people stretching themselves on loan to buy a home for themselves.
MM and SBajaj and others may have made multiple bookings, but none of them are for own use - they are for resale to people like you. They take the risks so that people like you can buy without risk - but they make a profit in the bargain while you pay for safety. They take the risk that job market might collapse and prices of flats dont rise. They take the risk that the builder defaults or gives substandard product. They take the risk that they may not be able to sell the flat for various reasons. Why should you take this risk needlessly? You are making an expenditure and it should be risk free.
Trying to do both together is not advisable, unless you can afford to do so - i.e you have a big salary and dont mind living on rent for prolonged periods and can afford to pay both rent and EMI - in which case, sector 78 is anyway not for you. Killing 2 birds with one stone means you stick to the best builders like 3C or logix etc for new bookings and have enough financial muscle to last rhough extended staying periods. It is unfortunate that a lot of people mix their investment and expenditure.
Just like insurance - it is an expenditure and mixing investment with expenditure is silly. And yet almost every insurance policy is sold as investment - and every flat is sold as investment - which actually affects one's judgement and proper selection.
So yes, I would definitely urge you to only buy nearly constructed flats, before registration and after due diligence. New bookings are risky and not worth it.
Yes, there is some loss of choice in taking over a booking, but not much - almost all projects have investors booking the best and choice flats only, because they know they can get a better price for it. So you will get your choice, provided you pay a few lakhs extra - which is worth it.
Negotiation and timing are the key things - and if you plan to live in a flat for 10-20-30 years, spending a lot of time and effort in selecting the best is well worth it.
Vikky, your idea - buy plot, target flat, sell plot and buy flat is excellent. Lots of people I know have been doing that
Arihant, your concept of buying a flat as insurance is also a good idea. While term insurance is a necessity for many, for those who can afford, flat is a good partial replacement for insurance. While insurance premium is a dead loss expenditure, you can turn a "insurance like" purchase of a flat into a good investment.
For this, I assume you currently rent a flat close to work but want to buy close to where relatives live.
That makes it basically an early retirement flat purchase.
You can exercise options of early retirement, shifting your job near where you want to live, getting an easier job there and finishing substantial part of repayment early in your life.
There are some caveats.
1. If you are younger than 30 and have no children, it is better to wait. Expenditures tend to bloat with Children - and salaries tend to rise a lot between 30 and 40.
2. If you are 35-40 or so, its the right time. Your ultimate peak salary is probably close to where you already are and family/children's requirements will be clear
3. If you buy too early, you might under buy - instead of a 3-4BHK which is ideal for final settling, you buy a 2BHK which you will later have to sell for the better house. Also, you will tend to buy with poorer quality builders because of cost effect - and these dont last 20-50 years (usual post retirement period which you should budget for)
4.A retirement house is actually the first purchase you should target before making other arrangements for children's education and marriage.
Location: Close to your relatives
Builder: if its your retirement home, you should buy a ready built flat. Since you are buying this as "insurance", you want to transfer an asset and not a risk. The risk is already there (untimely death). You should buy on a loan a property close to relatives and take out a loan insurance in case of death.
Buying a booking means you actually transfer a liability and not an asset. You multiply your risk. You are adding to risk of death, builder default risk, EMI risk, "living on rent while all your money is locked up in under construction flat" risk - thats not what you want to do.
A good compromise would be an almost finished flat. Then you can "risk it" that you will live for 1 or 2 years and get possesion.
Unfortunately, you wont get anything for your 25L without heavy compromise.
Is that 25L already with you or is that your loan amount? And how old are you? And how many children do you have - boys or girls or what? What kind of job are you in? How safe, what field? How much is your current rent and what percentage of salary is going out on rent? Where are you currently located?
There are so many unknown factors. Without taking all that into account, one cannot say anything
[QUOTE=pravinchaudhary;126900]Hi Venky,
Sector 78 is very far from NE, leave alone crossings. After 3 years, people will access 78 thru Dadri road. An operational (not proposed) SEZ is very close by. [/QUOTE]
I have visited 78 and the SEZ. I know where the place is.
What people are not seeing is
1. Sez will provide very low salary employment. People planning to live in 78 are actually higher income people currently working in NOIDA.
2. There are only 3 roads in future which will go from main NOIDA to 78.
3. The currently existing road is too small to handle traffic from main NOIDA to NE and 78 - and also all the developments in 120/1 etc as well. There is likely to be a lot of Crossings to NE, Crossings to NOIDA and Crossings to 78/SEZ traffic which will make commuting difficult from this side.
4. Dadri road is also very congested and cannot handle so much traffic. If GN expressway is tolled, a lot of traffic will shift to Dadri road - which currently take the longer GN expressway route because it is such a smooth drive
5. Commuting from 78 to main NOIDA and the expressway, where newer IT jobs will come up, will be tiring and hectic. There are only going to be 3 routes for going from 78 to main NOIDA/expressway and all 3 will be congested.
6. FNG is meant for truck traffic and it will be unpleasant to drive with trucks. It will not lead to where people buying flats in 78 will want to go for work.
If a place is disadvantageously located, only the people who have no choice - i.e. those with less money - are going to buy. That makes 78 a lower income/affordable section housing area. No matter how many wide sector roads get built in 78, the main link to NOIDA and through that to Delhi is going to remain just 3 bottle necked and congested roads.
Those thinking otherwise are making a mistake. Buying a premium flat here makes sense if you work in SEZ or nearby and not for main NOIDA. And if you will be happy for your children to take up SEZ jobs - again that indicates lower middle class only
Try driving in NOIDA between 10 and 11AM and you will know what I am talking about. Office will not change its timing to suit the traffic congestion. Vice versa actually.
In GN also, the best projects might now shift to the expressway and Yamuna eway and the adjoining GN areas on other side of FNG might turn into poorer quality/disadvantaged locations
Tuesday, November 16, 2010
On plot price movements in Gurgaon and NOIDA
I dont think Gurgaon and NOIDA plot prices will match Delhi prices in 10 years.
Plots in GGN and Noida are mostly in the hands of investors and are not being built upon. This trend will continue for at least 15 years.
Delhi plots are already built and in most cases re-built as builder floor. Prices upwards of 3L plus psy - GGN and Noida max 1-1.5L psy in best areas.
As GGN and NOIDA appreciates, Delhi will also appreciate in line to maintain difference.
After 15 years I expect DLF rates to be same or similar to South Delhi, after good amount of end user construction. Maybe will take even 20 years.
10 years is too small a time frame for this to happen.
People with plotted house in GGN are not happy - security is poor and water electricity and road woes.
People are selling kothis and moving to posh apartments - putting a cap on the plot price.
For plots in GGN and NOIDA, HUDA/NDA plots will not have as much value as Jaypee/Vatika etc who have integrated township plans. Only those plots will command premium because they are part of township and problems will be properly solved.
More and more people are going to abandon the Kothi style of living for apartments in Delhi as the advantages become clear over the next few years.
Building own Kothi in own plot is anachronistic and will die down. It came up in 60s and persists till now in Suburban USA because land was very cheap and abundant in USA and promised a good life.
In India, apartment life will be found to be better than kothi (kothi is not exactly a villa though called villa - our so called villa is very different from the Western concept of villa which has ample garden space >4-5 times built up space).
Still, plots in GGN and NOIDA will appreciate better than flat - so worth investment
Plots in GGN and Noida are mostly in the hands of investors and are not being built upon. This trend will continue for at least 15 years.
Delhi plots are already built and in most cases re-built as builder floor. Prices upwards of 3L plus psy - GGN and Noida max 1-1.5L psy in best areas.
As GGN and NOIDA appreciates, Delhi will also appreciate in line to maintain difference.
After 15 years I expect DLF rates to be same or similar to South Delhi, after good amount of end user construction. Maybe will take even 20 years.
10 years is too small a time frame for this to happen.
People with plotted house in GGN are not happy - security is poor and water electricity and road woes.
People are selling kothis and moving to posh apartments - putting a cap on the plot price.
For plots in GGN and NOIDA, HUDA/NDA plots will not have as much value as Jaypee/Vatika etc who have integrated township plans. Only those plots will command premium because they are part of township and problems will be properly solved.
More and more people are going to abandon the Kothi style of living for apartments in Delhi as the advantages become clear over the next few years.
Building own Kothi in own plot is anachronistic and will die down. It came up in 60s and persists till now in Suburban USA because land was very cheap and abundant in USA and promised a good life.
In India, apartment life will be found to be better than kothi (kothi is not exactly a villa though called villa - our so called villa is very different from the Western concept of villa which has ample garden space >4-5 times built up space).
Still, plots in GGN and NOIDA will appreciate better than flat - so worth investment
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