With the sharp rally in the market, people have been questioning the impact of the recent uptrend to real estate prices in India. Some projections put the Sensex at 15000, some others say that this is a bear market rally and will fizzle out as the results get announced. There is another article I read which said almost more then half billion dollars of FII money went into the market in the past few weeks. This must have wiped out bunch of shorts, most local businessmen who shorted the sensex between 9k and 10.5k thinking the sensex will go back to 7.5k, the lowest level seen in the past 4 years. However the FII swooped upon the sensex in huge numbers and have wiped the bears out of the system. Goes to show the perils of investing in futures and options.
If you read the first post in this blog it was made in Dec 2005, when the sensex was at 9057 and India was shining brightly. Now it is 3.5 years and the Sensex is 13,000 having visited 21,000 on the upside and 7500 on the downside.
If one has to co-relate the market, even though any co-relation can be atmost be deemed co-incidental, prices today are down 25-50% of the peak made in Jan 2008. Loan rates were lowest in 2003, when I remember Standard Chartered offering 8 % rates when I was in Bangalore. At that time, I could get a 3 bed for 30L the same today is at 80L. However in Bangalore one can easily find a 3 bed for 35-50L in some tech areas, same is case for Pune, Chennai, Hyderabad.
In Mumbai it is impossible to find any such deals except in far flung suburbs where one can break his back in the train commute.
The question to ask is why should real estate be dependent on the stock market ? Real estate can be more co-related to the economic well being of a society, job security and availability of cheap loans. Expecting stock market profits to end up in real estate is at best fool hardy. I had several friends who bought 2nd houses on loans in 2008 with the hope of paying them down with their stock market investments. With the wipeout in the markets, they are remorseful and regretting the whole episode of short term loss making trades. Now they live hand to mouth paying off their montly EMI's with their current salaries. With prices being down, they are in negative equity and bleeding every month. They are cut twice, once by the drop of their real estate values, 2nd by the interest they pay the banks and the biggest cut is the slicing of their portfolios by 70%.
Please don't trade short term with the aim of investing in real estate. If you are investing in the market, it should be for a period of 4-5 years. If you buy real estate, buy the primary residence at minimum 30% discounts to the current price with a 40% downpayment. The cost of good night's sleep is priceless. Never compromise on this ever.
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