The follies of “Investing” In Real Estate

Real Estate is the most overrated “investment” as of 2020 especially in developing countries like Bharat.   

The Everything  Bubble has burst in 2020, just like the bubble of 2008 , preceded by the dotcom bubble of 2000. 

I have watched the real estate bubble burst in the USA in 2008. 

I was physically present in the USA and almost got sucked into following the mania of that time according to the book Rich Dad Poor Dad by that famous useful idiot Robert Kiyosaki

Properties that were running at $200,000 in 2006 could not find buyers at $50,0000 in 2009.

Due to the pumping of “free” money by the FUKUS central banks and rest of the central banks of the developed world, the property values in the USA and other developed markets were reinflated until 2020.

The real estate market in Bharat has been a real estate speculators most orgasmic wet dream from the mid-1980s up to 2020.  It has only seen an upside. 

Bharat is the most overvalued real estate market in the world.

Bharat has not seen the bubble burst completely as of yet. What has happened until June 2020, is not even a side show.

Extract from article: House Prices/GDP per Capita in Bharat compared to Asia

Image of House to GDP Price ratio from Global Property Guide Asia

Just to give you an idea of how overvalued the Bharatiya market has become, read the live case study below.

In the early 1980s, my father was a senior military officer deputed to the Survey of India

His monthly salary was Rs 3000. 

A Sovereign of gold (8gm) was Rs 165. 

A Premier Padmini car was Rs 18,000 worth around  five 60 x40 sites (2400 sqft sites) in an upcoming locality like Indiranagar.

So, by today’s equivalent my father was earning 18 Sovereigns  of gold per month which is an extremely high salary in Bharat.

In the early 1980s, the plot we are currently staying in, which was adjacent to my grandfather’s house was sold for Rs 29000 (about 175 Sovereigns of gold). 

Despite their high salaries, my father and mother were unable to come up with the money to purchase this plot even as far as 1980.

Today the plot we are staying in is valued at Rs 3,60,00,000.  Just the plot, it does not include the house.

That is equivalent to 1071 Sovereigns  of gold. 

And gold is at the highest it has ever been in history, as of June 2020.

A highly paid person like my father earning 18 Sovereigns of gold per month could not afford it at 175 sovereigns of gold even in 1980.

Which person earns 1071 Sovereigns of gold a year today in Bharat or anywhere in the world?

Only crooked politicians, bureaucrats and Wall Street/Dalal Street Pimps and Lalas

Their day of reckoning has come.  All the real estate projects and real estate firms they invested their black money in will go bankrupt. 

Real estate projects will be abandoned or sold like Lehman Brothers at hugely distressed rates.

Rental yields are less than 2% of investment value.   You get more yield in a USA CD.

Net income from agricultural land, even the most high cash crop producing agricultural land in places like Kodagu is at an income to value ratio of 55. 

That means to earn a net profit of Rs 45,000/acre in a highly profitable zone like Kodagu you need to invest Rs 25,00,000 for an acre of land. 

This works out to a net yield of 1% on investment value. You get more yield in a German CD.

And Kodagu is the richest and highest tax paying district in Karnataka after Bangalore and probably one of the richest agricultural districts in the whole of Bharat.

So you can imagine how overvalued agricultural land also is in the whole of Bharat.

Land is only headed downwards for the next 10 years especially in Bharat, where, as of July 2020, House Prices/GDP ratio in Bharat is 627, far more than even Singapore which has a house price of House Prices/GDP of 27.

Singapore itself is an overvalued market even at a House Prices/GDP of 27. 

I have seriously studied housing bubbles, and historically in any market where the house price is more than 3 times a person’s annual income, that real estate market is overvalued.

Look at your annual income and the prices of houses in your area.  Look at the rental yield on those houses in your area.

Imagine how far real estate is going to fall all over the world especially in a hugely overvalued market like Bharat. 

I am sure this applies to many places all over the world especially black money recyclers and tax havens like New York, London, Geneva, and Dubai.

I would not be surprised if the real estate market returned to at least its historical ratio in 1980 of 175 Sovereigns of gold for an 1800 sqft plot in a premium area of Bangalore.

That means an 1800 sqft plot in a premium area of Bangalore will cost around Rs 60,00,000 compared to today’s value of Rs 3,60,00,000.

I know this sounds insane, but remember the same thing happened in the USA during the crash of 2008. 

A lot of high income people earn Rs 20,00,000 per year in Bangalore, so this will return to its historical mean of 3 times a person’s annual income.

This is for a high income area, so you can imagine what the prices will fall to in low income areas which form the vast majority of Bangalore and also Bharat.

I expect this to happen by 2024.

Most people speculate in real estate in hope of appreciation.  What happens when it tanks like I have predicted?

Land is a finite asset.  There must be strict rules on speculation of land. 

Holding land for speculation must be made an awfully expensive proposition that people think twice before speculation on land. 

We should have a land ceiling and only exempt urban land accumulation if urban land is accumulated at a single location by individuals for themselves and their children, and not by corporates.

After all you cannot be physically present in two locations and individuals cannot have access to millions and billions of dollars like corporates. 

I don’t think we should have a land ceiling on land used for agricultural or plantation purposes or land used for environmental conservation. 

We should regularly verify at least on a bi-annual basis, that land purchased for such purposes is actually being put to this use otherwise we should confiscate this excess land that was fraudulently purchased. 

This sort of verification of land purchased for agricultural, plantation and environmental conservation, can easily be done on a completely automated basis by machine learning and remote sensing, even on a weekly time period, with absolutely no human interference, at a very low cost compared to actually sending out humans to do this job.  

My firm शम्भल समत्वम् (Shambhala Samathvam) offers such automated verification solutions.

As far as possible this verification process should remove human influence since it could lead to malpractices.

A few times, people accumulate such land for their families or because they want to do agriculture or environmental conservation. 

I think these are the only kinds of people who should be allowed to get away with accumulating land.

For the rest of the real estate speculators, especially Representative DFIs,  corrupt Sarkari babus, and Wall Street/Dalal Street Pimps and Lalas, holding land should be made an extremely expensive proposition that they will not even attempt to purchase land unless they intend to put it to a fair and reasonable use.

This publication is for informational purposes only, it should not be considered Financial or Legal Advice.

Investments are subject to market risks and you could lose all or a significant portion of your investment.

Consult a financial professional before making any major financial decisions.

Before you take their advice, make sure the financial professional has a significant portion of their own, and if possible also their children’s net worth, in the investments that they are recommending to you, just like I have done, and publicly displayed at www.artofrealwealth.com.

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