Mark Mobius the famous fund manager (incidentally he runs the most disciplined scheme ever in India – Templeton India growth fund, the only fund in India that has been ALWAYS true to label) says the next ‘Dubai’ could be in Mumbai or Shanghai.

One kid in our office excitedly rushed to me (working on the Bloomberg screen is fun!) when Mark Mobius said that the next Dubai (Oh my God, we have converted another noun into a verb!) could be in Mumbai. Look at real estate prices. In God forsaken Nerul – 80 kms from Nariman Point one matchbox of a flat costs Rs. 35 lakhs! Look at a fresh MBA who starts on a salary of Rs. 4 lakhs (am I being liberal?) – this is 9 years gross salary. Imagine if the fresh MBA pays tax, pays for food and other expenses he will be able to save a maximum of Rs. 1 lakh – which means 35 years effort. It sucks. Real estate as a % age of today’s inflated salaries too is terribly expensive – and it should not be so.

The rich people conspire to keep the common man’s money in the bank (it is very safe, you will not lose money in a bank) – which gets slaughtered like a pig. The bank lends this money to the builder (did u see how the banks exposure to the real estate sector has gone up?), then merchant bankers get the QIB money into builders balancesheet, then the brokers get the ‘retired man’s money – FD’ into ‘real estate companies’ – Unitech is accepting FDs @ 12% p.a.

The brokers use all this money to sit on empty flats to jack up the prices. Funny how we push up real estate prices ourselves. Ajit Dayal of Quantum mutual fund and Quantum distribution has written a brilliant article with a lot of figures showing bank money going to builders. Funnily we fund price rises in real estate with our own money.

Then we borrow money and repay double the borrowed money – see the cost of your house – EMI * no. of emis is the cost of your house. Seen this way a house costing Rs. 35 lakhs + Rs. 30 lakhs as interest is actually costing you Rs. 65 lakhs. Only thing I have learnt about a bubble is stay away from it. If  possible do a secured lending to the players instead of calling them fools.

Disclaimer: I have investment interest in 4 houses, equity shares in Hdfc and one office. I still think real estate is in a stupid long term bubble if u see the salary to cost of the house ratio.

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  1. Dr Mohammed Ali Khan

    Right on Subra.. If you look at real estate from the returns perspective in terms of rental yield, Indian real estate, especially in the metros, is very expensive compared to the developed countries.

    I read a book by John T Reed.. About intelligent real estate investing.. He talks about ” Pride of ownership” which he says is stupid. He says that one should actually have ” Pride of returns ”
    Will one have pride of good return in Indian real estate.. hardly..

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