In July of 2007 there was a splash of news that National Housing Bank (NHB) is coming up with a Real Estate Index for (RESIDEX). Initially the plan was to include 5 cities (Delhi, Bombay, Bangalore, Kolkatta and Bhopal), and then it was to be expanded to include 35 cities with more than a population of 1million. For a sample of the news reports then, you can visit here, here and here.
But after that it has just been very quiet. There has absolutely been no reports on what happened to the RESIDEX index. Yesterday I emailed NHB about the same and have not heard from them. Do any of you have an idea what happend to the index?
Friday, April 18, 2008
Thursday, April 17, 2008
Who owns Real Estate Loans in India?
I've been waiting for some official confirmation of the bursting of the real estate bubble in India. Although bursting of the bubble (or even the existence of it) is still just hearsay, it is widely accepted that Indian real estate market is stuttering (to put it the best way I can). This article in New York Times ( http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?hp ) puts the depreciation in New Delhi and surrounding areas at 20%. I thought this is a good time to do a followup to my first post on Indian real estate which appeared in IEB and also was the first post for this blog.
In the midst of the bursting housing bubble in US, UK, Spain, Ireland ..etc., sub-prime has become a common word (it also was nominated as the word of the year). There is a lot of good articles, blog entries and web sites explaining the whole life cycle of a mortgage loan(s). How they are converted to Mortgage Backed Securities (MBS) and packaged as Credit Default Obligations (CDO) and sold to hedge funds, central banks across the world, private investors and investment banks. Although it is not exactly known who owns how much of the toxic mortgage loans, atleast we know what happens to these loans in a general sense. This is very important in the current scenario for any kind of safe investment in the stock market or even to have a decent understanding of the current complex derivative based economic environment.
I've been trying to find out what happens to a mortgage loan made in India. Does the bank own it? Or does it sell it as MBS? If they sell it as MBS who buys it? With ICICI, HSBC ..etc making huge number of mortgage loans what are their chances of withstanding a 20-50% crash in real estate prices in India. Does India also have fractional reserve banking system?
With the foreclosure process in India not that well defined who will end up holding the bag?
All these questions arise only when we assume a deflating housing bubble. I know many readers still feel that there is no housing bubble in India. Let us keep that aside for the time being and let us assume hypothetically that there is a bubble in India and it will deflate 20-50% and and try to answer the following
Annam
In the midst of the bursting housing bubble in US, UK, Spain, Ireland ..etc., sub-prime has become a common word (it also was nominated as the word of the year). There is a lot of good articles, blog entries and web sites explaining the whole life cycle of a mortgage loan(s). How they are converted to Mortgage Backed Securities (MBS) and packaged as Credit Default Obligations (CDO) and sold to hedge funds, central banks across the world, private investors and investment banks. Although it is not exactly known who owns how much of the toxic mortgage loans, atleast we know what happens to these loans in a general sense. This is very important in the current scenario for any kind of safe investment in the stock market or even to have a decent understanding of the current complex derivative based economic environment.
I've been trying to find out what happens to a mortgage loan made in India. Does the bank own it? Or does it sell it as MBS? If they sell it as MBS who buys it? With ICICI, HSBC ..etc making huge number of mortgage loans what are their chances of withstanding a 20-50% crash in real estate prices in India. Does India also have fractional reserve banking system?
With the foreclosure process in India not that well defined who will end up holding the bag?
All these questions arise only when we assume a deflating housing bubble. I know many readers still feel that there is no housing bubble in India. Let us keep that aside for the time being and let us assume hypothetically that there is a bubble in India and it will deflate 20-50% and and try to answer the following
- What does ICICI/HSBC do with a mortgage loan they issued?
- Are there any organization/corporation equivalent to Countrywide/New Century whose main role is issuing mortgage loans?
- Are mortgage loans in India securitized and sold?
- If yes to the above question, who are the buyers of these securities?
- Is a good foreclosure process possible in India?
- What happens when someone defaults on a home loan in India?
Annam
Saturday, January 12, 2008
Renting vs Buying
Can Bangalore be called as Ground Zero for the India housing bubble? I think there will be more contenders vying for the spot - Hyderabad, Delhi, Mumbai.
But here is an anecdotal evidence of a pricing bubble, or in other words how you can have a better quality of life renting instead of owning in bangalore. Thanks to Gala Time.
Cost to Rent: Rs 15000 per month
Cost to Own: Rs 34,000 per month
This is in the face of no appreciation in the near future, additional maintenance costs and taxes.
But here is an anecdotal evidence of a pricing bubble, or in other words how you can have a better quality of life renting instead of owning in bangalore. Thanks to Gala Time.
Cost to Rent: Rs 15000 per month
Cost to Own: Rs 34,000 per month
This is in the face of no appreciation in the near future, additional maintenance costs and taxes.
US ... UK ........ what next?? Spain/India/China/Dubai
Now the MSM is waking up to the slidedown in UK. Which place will be next? My ordering will be thus - Spain, India, China, Dubai
Friday, December 28, 2007
Correction or Collapse?
There is an interesting article at LiveMint on Indian Real Estate Correction/Collapse. Hines Interests, a real estate firm is expecting a 50% drop in prices.
One statement in the article sounded weird
If 50% correction is not a price collapse what is?? 50% price collapse from 300% is 150%. The last statement in the above quote almost tells that Hines would like a bigger collapse!
Collapse or a correction, whatever you call it I'll take a 50% cut, we will be almost near reality.
"With a tripling of prices in some cities, Hines expects a 50% drop in prices".
One statement in the article sounded weird
“The real estate bubble will not burst in the sense that prices will collapse,” he said. But he expects there will likely be a correction in prices up to 50% noting that, “even that is not a huge reduction considering the fact that prices have doubled and tripled in the last couple of years.”
If 50% correction is not a price collapse what is?? 50% price collapse from 300% is 150%. The last statement in the above quote almost tells that Hines would like a bigger collapse!
Collapse or a correction, whatever you call it I'll take a 50% cut, we will be almost near reality.
2007!
Its been almost a year since I last posted and its almost a year since I started posting!
Was it ennui or was I just tired of being one of the very few 'Indian real estate bears'? I'm not sure whether it was one or both, but am back with a new energy and more conviction of the impending fall of real estate in India.
2007 was a very interesting year for me. I learnt quite a bit about real estate, economy, LBOs, CDOs, M1, M2 .... It was a 'Alice in Wonderland' experience for me. For a person more accustomed to the certainty of Newtonian physics and field of computer software which follows clear and succinct logic it was a step into unchartered territory.
The world of economics is not a WYSIWYG world. Two economists see the same data and come up with two completely opposing views. It is beautiful in a sense, but it is quite scary that there is no absolute picture which everyone sees and agrees upon.
Now moving away from the metaphysical ramblings, I'll bid adieu with a note that I'll start posting more on 'Indian Real Estate'.
Annam
Was it ennui or was I just tired of being one of the very few 'Indian real estate bears'? I'm not sure whether it was one or both, but am back with a new energy and more conviction of the impending fall of real estate in India.
2007 was a very interesting year for me. I learnt quite a bit about real estate, economy, LBOs, CDOs, M1, M2 .... It was a 'Alice in Wonderland' experience for me. For a person more accustomed to the certainty of Newtonian physics and field of computer software which follows clear and succinct logic it was a step into unchartered territory.
The world of economics is not a WYSIWYG world. Two economists see the same data and come up with two completely opposing views. It is beautiful in a sense, but it is quite scary that there is no absolute picture which everyone sees and agrees upon.
Now moving away from the metaphysical ramblings, I'll bid adieu with a note that I'll start posting more on 'Indian Real Estate'.
Annam
Monday, February 5, 2007
Asset bubbles and Capital Inflows
Its almost been three weeks since I last posted.
There is a very interesting article in Bloomberg about asset bubbles, capital inflows and liquidity. As of recent am seeing quite a few 'asset bubble' articles pointing to liquidity and capital inflows as the main culprit. There is quite a good blog post (Nouriel Roubini) on what happened in Thailand recently and the role the gushing capital inflows played in it. I have to read a bit more and understand this whole chain from capital inflows to liquidity to asset bubbles to its after effects.
Hopefully I'll be posting more often from now.
There is a very interesting article in Bloomberg about asset bubbles, capital inflows and liquidity. As of recent am seeing quite a few 'asset bubble' articles pointing to liquidity and capital inflows as the main culprit. There is quite a good blog post (Nouriel Roubini) on what happened in Thailand recently and the role the gushing capital inflows played in it. I have to read a bit more and understand this whole chain from capital inflows to liquidity to asset bubbles to its after effects.
Hopefully I'll be posting more often from now.
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