Category: Realty

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Observations Realty RealtyStocks

Why analyzing Indian realty stocks is a waste of time

I came across this article where a brokerage firm does a “Realty Stock Check”-which realty stocks to buy/hold.Found it fairly amusing that there was no “sell” in the title.

Brokerages tend to treat the realty business like any other business.But do they seriously believe that the balance sheet/p&l statements of a realtor reflect the true state of affairs?

Cold hard cash is the mother’s milk which runs the realty business in India.You need cash to buy the land (no land owner will settle for 100% white), you need cash to pay off the contractors,you need cash to manage the politicians, you need cash to manage the officials etc

In Mumbai, builders routinely pay a couple of crores even before construction starts.

When such a large part of the realty business is done off the books,then does looking at the balance sheet etc make any sense?

Realty stocks can be a good medium for speculation/punting.But if you want to make real money from realty, forget the stock and research the hard asset.

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Quotes Realty

And one day the money ran out

“I got more than Rs.2 crore by selling nearly three acres of agricultural land at Sihi village, now Sector 83-84. I purchased six acres in a village in Mahendergarh district, built up a ‘kothi’ (bungalow) and bought a SUV,” Kanwar Yadav, 48, told IANS.

“I never thought that money would finish one day. I had to sell my SUV after one and a half years. Now I am working as a private security guard in a building on my own land,” he added.

His story is similar to that of many farmers who once owned land on the stretch between Gurgaon and Manesar.

Rajender Singh, Kanwar Yadav, Dharmender, Ramesh, Omprakash, Leela Ram, and Narender Singh, Mahesh Yadav, to name just a few, are from villages like Sikanderpur, Badha, Nawada, Rampura, Nakhrolla, Manesar, Narsinghpur, Mohamadpur and Naurangpur About 90 percent of the farmers from these villages sold their agricultural land to private builders either out of fear or willingness or greed.

Mahesh Yadav, 34, quit his job as a Haryana Police constable a few years ago when he received more than Rs.1.5 crore by selling land.

“He used to celebrate and give parties on the birthdays of his family members. Once he organized a party to celebrate the birthday of his pet. He drove a Mahindra Scorpio for two years. Now, he works as the driver of a private vehicle,” said an elderly resident of Sikanderpur village.

Mahender Singh, 50, received close to Rs.4 crore by selling nearly five acres of land in July 2008. After buying 10 acres of cultivable land in a village near Dharuhera in the adjoining Rewari district, he bought a Mitsubishi Pajero. After 18 months he replaced it with a Tata Safari that he sold in early 2012 and now drives a Maruti Swift.

“My seven-member family survives on the little rent that comes from my plot in Gurgaon city. I had never thought it would come to this,” Mahender Singh rued.

Ramesh, 38, has a similar story. After getting nearly Rs.80 lakh in 2006, he purchased some agriculture land in Rewari district, opened a hardware store and bought a Hyundai Santro car. By 2011, he closed the store, sold the Santro, and now he drives a
three-wheeler of his own.

Omprakash, 40, of Rampura village now works as the assistant of a sub-contractor, building flats on the land in sector 82 that includes five acres that were once his.

“I had an emotional attachment with my land, but I sold it because there was a strong rumour that the government would acquire it,” Omprakash said.

“Many of the semi-illiterate farmers and their families, in the absence of proper guidance and experience, got into the habit of overspending without generating proper sources of regular income,” Anurag Bakshi, a former Indian Revenue service (IRS) officer, told IANS.

“They insisted on buying costly cars and building a bigger house than their neighbours’. There would be competitions in hosting lunches to which hundreds of villages were invited. They spent blindly on their marriage ceremonies,” Bakshi added.

And one day, the money just ran out, leaving them high and dry.-from the IndianExpress

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Realty

Why property is not the biggest con job for investors

In my linkfest today, I had linked to R Jagannathan’s article “Why property is the biggest con job for investors”

I confess that I have a soft corner for R Jagannathan-I often see him early mornings taking brisk walks while vigorously twisting his wrists.

But he does not do justice to realty as an investment option.

He raises some pertinent points:

1.Property prices rising due to land shortage is a myth.Increased FSI can solve land scarcity issues

2.Property prices can rise as well as fall.Why his Thane flat did not go up in price for 6-8 years !

3.Laws of demand and supply will catch up with the reality of unaffordability

Now lets examine each of these points.

The first point about increased FSI solving land shortage issues.There are numerous court judgements related to FSI.The Navi Mumbai Municipal Corporation wanted to raise the FSI to 1.5. The Court stayed the move for 4 years !It vacated the stay only when statutory provisions were brought into effect prescribing the maximum FSI !

Our cities infrastructure is already coming apart (water,sewage,electricity,schools,roads etc).Can existing infrastructure support a  FSI of 8/9?The answer is NO and hence the restriction on FSI

2.Property prices can rise as well as fall.This is very much true.However, if one has an investment horizon of 25-30 years, nearly all realty options in India-residential, retail,warehouses,land etc have given fabulous returns.The reason is two fold-increasing population and inflation

One possible exception is commercial realty.In India,commercial realty is an investment option only in 6-8 cities.Their prices fluctuate/decline as the population centre moves or new modern alternatives develop.In case of Nariman Point, prices fell as more people moved to the suburbs and better options like BKC etc developed

3.Is the Indian real estate market unaffordable to people?The answer is that for large parts of the market the answer is Yes.One can indeed expect a price correction as well as a time correction.But for the astute investor, there can be bargains/special situations even in the realty sector.Special situations in realty can be of all types-people made a killing when Jharkhand was declared a separate state, some people benefited when Mundra port got developed etc.Now the smart money is looking at the Delhi-Mumbai Industrial Corridor for their next multibagger returns.

Well, then what is the future of realty in India?

Well, the answer lies in a mega trend.I had earlier posted about a huge mega trend that will play out in the next 30-40 years.According to United Nations, our Indian cities will add around 500 million people to the existing urban populations in the next 40 years !

This mega trend and structural inflation are the solid bedrock on which real estate prices will keep increasing.

Now, let me end with a family anecdote.One of my uncles bought a flat on the outskirts of Mumbai in 1976 for around Rs. 40/sq feet.Now, the price is around 10000 Rs/sq feet.This translates into a compounded return of around 16%. This capital appreciation+Rentals handily beats inflation and other investment options like equity,gold etc

Readers may check with their own families for anecdotal evidence of the compounding power of real estate over long periods.One such interesting anecdote is posted here.

 

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Realty

Renting Vs Buying a Home-Part 2

This video is in continuation of the Renting Vs Buying a Home -Part 1 (posted here)

 

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Realty

Renting Vs Buying a Home

A very relevant tutorial considering the nose bleed realty prices currently in most parts of India especially my hometown Mumbai.The screen is initially dark for the first minute or so but not to worry, that’s how the tutorial starts.