Biggest Challenge To Real Estate Comes From China!

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Every Tom, Dick and Harry had only one opinion about real estate 2 years back. It has nowhere to go except up. I spoke to many people and gave them all my 2 cents but they all dismissed me at that time and started giving me lessons in investing. I am no guru i say what i see and what i feel.

Real estate is not God it is not something which can never go down. It is an asset class and like any other asset class has risks involved in it.

The biggest risk and challenge in real estate in India comes from China. As everyone knows that America is under huge debt from China viz about $11 trillion and everyone including China knows that American Government will never repay the debt.

The Chinese have a huge bundle of US Dollars in there reserves. So much so that even American Government does not have that many.

The time is not far away when Chinese people will start selling the USD aggressively and will make the US currency go tumbling down. Once that happens the INR will be so down as well that no one in the country will have a job or money to even pay for food, let alone invest black money in real estate.

This will happen pretty soon and will take everyone  by surprise. When this does happen the first market to crash will be the Equity market. The next one will be real estate.

The equity market will survive just because of liquidity in it, but real estate and people involved in real estate will most likely be most burnt out because of sheer lack of liquidity in the sector.

No liquidity and still people say real estate has nowhere to go but up.

STRANGE!

Commercial Property in Punjab is exorbitantly priced!

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I wanted to see what the reaction of people will be when i ask them about the exorbitant pricing and logic behind the real estate. So i went to market and looked for a few properties. The pricing was so exorbitant that it simply blew my mind of.

In Rajguru Nagar, Ludhiana in an area where market is 80% unoccupied and has virtually has no customers coming in. The price of a 10×10 (100 sq. Feet) SCO is wait for it INR Rs. 50,00,000/- yes that is right 50 Lakh for a 100 sq. feet shop in an area where 80% shops are closed and only owned for resale and where there is no customer in realty.

Now if i am serious about starting a business and wanted to start a shop in this area. I will have to Shell out a 50 Lakh for shop another 10 Lakh for furnishing and another 50 Lakh for product building. Total comes to 1.1 Crore. I shell out 1.1 Crore to start a business in an area which has 80% unoccupancy and no customers.

Logically thinking I will never get back the 1.1 crore ever because there will virtually be no sales.

But when you speak to “Real Estate Gurus” they say so what just buy the shop and sell it for 1 crore in 4 years why start a business and even if you want to start a business your shop value will rise.

My question are you certain it will rise? What makes you so sure about it? In a market which has 80% unoccupancy for last 12 years what makes you think the prices will double again like it did in last 5 years of “Price Rigging” in next 4 years as well?

This is not something artificial i an writing, you do not believe me you can go check the pricing on street and ask to buy a shop there.

Now i wanted to see if prices are negotiable? No they are not. We will keep holding onto inventory and loose all interest income but not sell the shop for 1 lakh less.

Kudos for making it almost impossible for anyone to start a business and generate Jobs in a state which is dying financially for your greed by using “Price Rigging”.

Why Real Estate in Punjab is poised for a huge fall in near term?

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I have always been an ardent believer of a saying in investing which is never to put all your eggs in one basket. With that in mind, i never invested too much into one asset which actually saved me from 2008 market crash and i came out with only a marginal loss. Now about my views on real estate. I do not claim to be any expert or anything in any financial savings or investments i just share what I believe.

Up until 2010 real estate market in Punjab looked really attractive and was one of the best place to park your money.

The prices were rising sharply and all and everyone was enjoying to their fullest in the mean time Beheading the real business and industry which is the backbone of Jobs and backbone of “Real Growth”. Can any state or country have real GDP growth based solely on the rising real estate prices. I know GDP has real estate in factor in it as well but I stated “Real”.

So much so that in Ludhiana bigger firms like Eastman started investing and selling real estate rather then focusing on their core business which has started to plummet now. Eastman’s core business is actually in ruins now because of excessive leverage on real estate that they took viz. a viz. Janpath Housing Society.

Uptil 2011 they sold good amount of real estate at Exorbitant prices to many gullible investors who bought into it thinking it will rise like it did from 2002 to 2011. But since last 2 years things are not rising but stagnant.

So everyone has a logic that they are stagnant for now but will start rising in near term. Remember one thing past indicators are never the logic for rise in any asset’s future pricing. I explained the plight of the industry and regular business in Punjab in previous example of Eastman. Same is the case with many more industry as well.

Almost 50% industry is running low on cash and is on the brink of closure. Rest of the industry is thinking to shift outside Punjab since govt. policies are really not that business friendly.

Now question to all investors who think property in Punjab will start rising soon. When industry dies or comes to a halt which will happen in next 7-10 years where will jobs come from? Where will money come from for people to buy their homes?

Does that not let a logical person question Why invest in real estate when jobs will die pretty soon?

This is just start of my series on why real estate is poised for 30-50% correction in coming 4 years.

Please stay Tuned for more updates from my side.

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