A food for thought: A 30x40 plot in my native place (for that reason, take it any taluk / district town or tier-3 city) will cost 8-10 Lac. But same sized plot in Bangalore costs 50-80 Lac!!!
Why?
I am sure you will call me crazy for asking that.
You will say "economic worth" of two are not comparable!
OK, then why the same doesn't hold good internationally? A third-world country's property prices are relatively costlier(35x PE) than developed country's ( <25x PE) ?!!!
The real estate investors or even you and me would call equity market ballooned @ PE 25x and may thereafter it would crash / bubble will burst. Real estate today is above 35x PE. Here I am taking about physical real estate not real estate stocks.
Which ever locality of Bangalore you may be living, I am sure this holds good. Consider the rent from property as the earning. Think of the price of that property. I am sure you will arrive at 35 PE. The situation is worse in Mumbai and Delhi NCR (May be more than 40x). Even if the capital appreciation is factored in (may be incorrect to do so on PE based calculation), it still be at 27-30x.
This is highest in the WORLD!!
More than even Tokyo or London or Paris... few of the costliest cities of the world.
Interestingly look at the real estate stocks... Take any big name... They are quoting dirt cheap. Many are @ half their Book Value. If the real estate is such an awesome investment same should reflect in their stocks... Well that's common sense.
Most of the buyers are "investing" to sell for huge profit. Thanks to cash and black / grey money, real estate deals have become 'speculative' transactions. Greater fool theory perfectly at work.
The person who can buy when majority can not, then he has easy money or wealthy man greedily & foolishly "investing" without caring the fundamentals of economics. He buys it for selling later. He should find another similar person (greater fool) to liquidate. Because the price was already out of reach of of genuine buyer for consumption. So that genuine buyer ends up being tenant (renting from) of that 'smart' (self proclaimed) investor.
As tenant's income is limited and hard earned, rent can not be irrational. That's why rents do not increase at the same pace at which property prices do.
It has been rolling for long time now and cannot keep rolling forever. Just it's a matter of time...
Reasonable levels were breached loooong ago.
Reasonable levels were breached loooong ago.
Now only there are 2 possibilities
First, obviously it should crash.
Second, it should hang on at these levels until earnings catch up; i.e., income levels of genuine buyers (not so called investors, who are in fact speculators) go up to the level at which they can afford it. Second option is good for the whole of economy.
First one will have ripple effect that will spill out to every other sector starting from banking. Remember the subprime crisis in US followed by great global recession.
First, obviously it should crash.
Second, it should hang on at these levels until earnings catch up; i.e., income levels of genuine buyers (not so called investors, who are in fact speculators) go up to the level at which they can afford it. Second option is good for the whole of economy.
First one will have ripple effect that will spill out to every other sector starting from banking. Remember the subprime crisis in US followed by great global recession.
Last point: any asset ultimately should have direct or indirect consumption backing. Homes are ultimately built for people to live in. There is a huge demand for affordable housing but in reality most of the people can't find one. For them 'Realty' has become mirage.
