'Hype' is back on my blog; my previous post on Hype can be found on SDLC Blog (Another blog, which I write).
BSE Sensex is hovering in 9000s now. The correction as predicted has come, it was something that was bound to happen. People who invested in stock markets needed returns and it was the right time to sell. This same correction came in Software and BPO industry few years back and now these industries are stronger and more stable than ever. The reason for the bubble was 'Hype' - we all love hype isn't it?
There is similar hype now days in real estate markets. It is amazing how 2 bedroom flats are being sold for 40-50lacs; well beyond the reach of majority of middle classes. There is a lot of hype in the market and it can be seen easily. There are more flats and houses ready than there are any takers. Builders spread false rumours to attract premium and clients. The fact is, if you go back to same builder a month after - he will show you same flats. According, to some latest surveys (I can't get hold of sources to verify the facts) there is more supply than demand in real estate market. Sooner or later correction will set in real estate market as well. Correction in markets is a natural phenomenon. It can be seen in real life too, mountains are flattened, low lying areas filled due to earthquakes or silt deposited by rivers etc.
Correction should not be considered negative; rather it is something positive which stabilises the market. This is the time when you see the real picture - Boys separated from men. The winners or the companies which are strong will stand tall in times of correction too. While, the companies which were unnecessarily attracting attention and taking advantage of the hype will die. It can be termed as natural selection of industry.
Now, I have given more hype to Hype and this should end here.
-Thinking Thinker
4 comments:
Its not just hype, its financial harakiri. Most of these Rs 50 lakhs flats wouldnt yield even Rs 15 K rent. At the current interest rate of 7%, its foolish to pay Rs 3.5 lakhs per annum (on a capital of Rs 50 lakhs) to save under 2 lakhs.
Most of the flippers have got out of the game, a wait of another six months (accompanied by interest rate hikes) will prick this bubble
Well, Real estate is something that never goes in reverse. The overall trend always increases even if slightly.
Difference between rent rates and mortgage rates is considered mostly by 2 people: 1) who are evaluating renting vs. buying. These people are usually young and at the start of their careers. 2) who want to make money off of rent.
I agree that it doesn't make sense for either of the above 2 types to buy right now. However, buying real estate is a great investment for long term results. Esp in India
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Hi,
Nice point!!!
That is very true... I forgot to mention in my post... by correction in real estate I meant coming down to realistic levels. But, investing in real estate is never a loss making venture. Property always appreciate.
Investing in share market with long term view will also yield result. So depends what kind of returns you are looking at.
Well see real estate prices may get stanganat or correct themselves. Or if purchasing power of people increases the correction may never come.
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