Real Estate in Gurgaon Is Peaking, Optimism Reigns, I Am Shorting S&P 1150

I am in the land of the optimists.  Indians are truly an optimist populace.

But tell me what I am missing.  A friend of mine rented a 4 bedroom luxury condo in Gurgaon, India.  For those of you that are unaware of Gurgaon, it is an IT and BPO hub, probably the largest in India outside of Bangalore.

Here's what the building looks like:
http://www.theicongurgaon.in/

Now you can buy a unit in this building for Rs 1,54,00,000.  Or $342,000.
Or you can rent for Rs 45,000 per month.  Or $1,000 per month.
A back of the envelope calculation suggests the cost of ownership is roughly $2,300 per month at 10% down, not including taxes and maintenance, which I am guessing is another Rs 10,000 per month minimum, or $250.

Two things come to mind.  The market is overheated as is obvious to any real estate investor/owner living currently in the U.S.  Second, the actual cost of ownership is still pretty cheap to be able to rent a 4 bedroom luxury apartment with all amenities for under $1,000 a month.

Now the lack of  rental pricing pressure tells me that these greedy developers will keep developing until the marginal cost of development and sucking in preconstruction investors is exceeded by the risk.  There is no shortage of land around Gurgaon.  Nor for that matter in Bangalore, Pune, and other IT hubs.  And they will keep developin this until buyers are exhausted, unwilling and uninterested.  And the cycle will turn. 

While there is a purchasing power advantage in India, I think it is deflation in the U.S. that will eventually bring the U.S. to parity with India.  Either way, color me somewhat skeptical about India's emerging superpower status.  India has enjoyed tremendous advantages in terms of costs when offering BPO services to U.S. corporations. 

It has been a story driven by cost advantages.  Indian workers and Indian infrastructure is not more efficient than the U.S. 

India also has the benefit of a young work force with some 60% of the population under the age of 40.  But I am guessing there will be a lot of older guys willing and able to work in the U.S. for  a long time to come.  Sad but true.

As far as the market goes, the average retail investor is now growing ever more confident and complacency is rampant.  As we all know, it is precisely times like these that the market serves up a cruel reminder.

The Same Old Story with Real Estate

Realtors are again putting out the same old story, are these guys ever bearish?

Prices are on sale and if you do not get in now, you'll miss out.... the same old story of greed and fear.

Having been a landlord for many years myself, let me tell you that a vacant apartment can be death to your finances.  If you're an investor buying on financing, it is a risky business. We're still clearly in a deflationary path on rents.

One very simple way to determine demand and supply is looking at the craigslist listings for rentals.  Search craigslist las vegas or craigslist palm beach or any other location and if you've been tracking this data over the past years you'll see that where listings used to average about 100 a day during the peak we are now up to over 500 listings each day! Care to compete with that kind of competition?


Here is what is happening in the Palm Beach market based on my personal conversations with agents and investors


Lenders like Option One that own defaulted inventory are not foreclosing on that inventory.  I know of property that owners have walked away from over 18 months ago and is still not foreclosed.  Why? Because lenders know if they foreclose they'll be responsible for taxes and maintenance and liens.  So lenders are opting to let the foreclosed owner keep the property until they find a willing buyer.

Option One recently offered a tenant at a local community $3000 to move out so that they could start showing the property without actually owning it.  This kind of illegal activity is underway in Florida and I am guessing other parts of the country.

All it does is confirm the huge amount of shadown inventory that continues to sit on lenders books.

Rising Rates Coming
Now if you're an investor that has the cohones to buy in this market, granted there are a few good deals if you know how to land a renter.  Hats off to you.

But if you're an investor, you need to consider what will happen to prices when rates go up.  It does not take a rocket scientist to figure out that prices will continue to stay under pressure for a long time to come as rates are most definitely headed higher over the longer term.  And if you don't get that, then you really have no business being an investor.

Regardless of how you spin it, investing in real estate is an unattractive opportunity unless you have a 20 or 30 year horizon and are willing to deal with the headaches of being a landlord during that time.

Hey Floridians, Las Vegans, Californians.... Sound Familiar?

It is not my intent to bring back past wounds or pour salt on them, but you have to read this to believe it...

Surging demand for residential units has in recent months seen potential buyers queue for hours before new house openings and anecdotally many have left blank checks with their property agents to fill out to secure their spots in new projects.

Private sector developers in July launched an all-time high of 2,878 new flats and an astounding 2,767 of those units were sold out within a month. That sales figure smashed by 52% the record of 1,825 units sold set the previous month

In case you haven't figured out where, this is Now, in Singapore
New heights for Singapore property 

http://www.atimes.com/atimes/Southeast_Asia/KK04Ae01.html