People never learn & I hope I am wrong

My best friends have all been calling me and asking the same question. “Should I buy property now ?”.

Palpable anxiety will dominate every conversation. Interestingly most callers will start arguing the case for reality after hearing my opening lines which were not what they wanted to hear.

Initially, I wondered if it were just an NRI phenomenon. Being so far away from India, the NRI could easily be a  victim of the well-oiled real estate selling machine. Not to forget, their social do’s with fellow Indians must be full of bragging stories about those wonder investments made by almost everyone. Everyone would have a story. A stroke of genius that worked for them and keeps them ahead of their NRI peers. On the long drive home from those parties, your wife will unfailingly point out that you may be missing out on something.

The NRI must be loving this dream tale of Indian reality while hating everything else about India. After all, nobody believed when they left India that their Indian country cousins they left behind will be worth millions of dollars because they owned some real estate. For years, the Global dream was way ahead and Indians were hardly wealthy when compared with their peers who left the shores of India. But, bubbles change everything and my friends in London or NY feel that an Adyar home is out of their reach. This feeling of India being out of their reach has actually given many NRI’s a left out feeling.

I drive through Gandhi Nagar, Adyar seeing the cubby holes that count for half a million-dollar homes (notionally, of course ) and my disbelief only grows on me. So who is wrong out here? Will buying now be a smart thing? What are the odds that these markets fall by half? Instead, let us get some odds on prices going up further. Almost everybody agrees that prices cant go up. Even the greediest fellow concurs on this. But, nobody believes that the prices can go down. Sounds familiar, right?

Didn’t we hear the same thing when there was a bubble in equities in 2008? Or, during the bubble in gold in 2011-12?

In a bubble, even optimists typically believe that prices cant go up. But, they equally believe the prices cant go down too.  So bubbles destroy late believers and leave them financially maimed for a long time if not a lifetime.

That took my thoughts to 2004 when I saw the maimed lot sell real estate. That was a time when I last bought realty aggressively. Then, the mood was glum. Nobody wanted to buy homes as they thought the prices will never rise. Builders made 250 rupees to a square foot as profits and big projects like condominiums gave profits of a few crores.

Now, builders work on profits in thousands per square foot. Actually, the profits a builder makes in a City development is much more than the selling price of comparable homes in 2004. So, what has changed so much in 9 years? Perception & investor confidence has run ahead. The result – investor greed funds builder greed.

The sad truth is that when confidence runs way ahead, there is a price to pay for it. I hope I am wrong at least for the sake of my good friends who are buying homes now after never thinking about the idea for a decade. Doing the unthinkable at the market top is something I always dread. That friends are at it is a double worry.

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