Crisis of the mind

IBN live reports on a suicide/murder by a stock broker who is unable to make good of his losses and take care of his family and buy a flat. As we have discussed, investors have huge losses where they are losing all their capital which they have built up over the past 3 years, plus many have taken loans against the stocks/margin which the banks are asking them to pay back. Added to that they have EmI's on houses. The whole bubble was created on a house of cards and the deck has collapsed.

One of the readers mentioned about an apt which he had purchased for 30L which is now 1.2 crores in 3 years. This is a fantastic investment if he is able to liquidate it at 1.2 Cr. If he does he has found a sucker and more power to him. If he does'nt then I guess he is the sucker, since he wont see 1.2Cr for a very long time. Just as the Sensex has retraced all the 100% return over the 3 year period and stocks are down 70%,80%. so will the housing market retrace to lower levels. No bubble exists in a vaccum and this is no exception.

Also having lived in Bangalore and mumbai with mumbai being my hometown, I can say that Bangalore has many more opportunities for higher paying jobs then mumbai. Housing is also way too cheap as compared to mumbai and with newer societies with all amenities which have sprung up over the past 5 years, things are better in Bangalore then before. The locals complain of the spike in traffic but then mumbai has equally bad traffic so to a mumbaikar there is no difference, but the housing cost and the pay packet, both which work in his favor.

There will be some people who will argue the black money aspect of housing and I can only say that the house of cards was created on EmI availability which generated more black money for the builders. Now that the generator fuse has been shorted, so will the output.

One last point I'd like to make is the psycology of builders who want to keep raising prices even if they can make a handsome profit by selling 10% below their current prices. It achieves the following purposes

1. Creates an illusion that prices are rising prepetually for the buyer who is seeking appreciation.
2. Provides mental comfort to existing owners that they are in the money and they dont need to sell
3. Traps NRI's and other high net worth people who has disposable income and/or black money
4. Enforces the notion that real estate is a growth asset as opposed to an income generating asset. If you looks at the P/E it is abysmal in mumbai
5. Sells the mantra of moving up the chain as real estate always builds equity.

All these things work in the long run if you have a good entry point. In a bubble economy, all bets are off and the last man standing will face the music.