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I have been tracking the real estate market in Kerala for over an year now. My interest in it was sparked by our very own Chief minister when he coined the term “Real Estate Mafia”. The amount of money that flows in this business is huge.
One year back real estate business took a hit all over India except for Bombay and Kerala. Even Bangalore saw 10% to 20% price decrease. Transaction volumes decreased sharply. But Bombay and Kerala were not affected.
In Bombay, there is enough cash flow to maintain the prices. Its the business capital of India. But what is so special about Kerala ? Its the exact opposite reason. We dont have any business here.
What are the investment options in Kerala for someone with loads of disposable cash. Think of an NRI who can pump in 20 to 30 lakhs every year. Where can he invest that money ? Land is the only safe investment for him.
That’s the beauty of the socialist attitude we have here in Kerala. We never allow good business to stay here. We are very hostile to new businesses. And we have earned that reputation among foreigners also. Every foreign delegation that comes to Technopark asks this question. “Ive heard that there are labour problems here. Is it safe to invest here”.
For Keralites, the only safe investment is in land and crores are being pumped into the market every year. This is the only reason why the prices are increasing.
No land reform or no law can remedy the situation. People will continue investing in land as long as we dont provide them with other options. No point in calling the real estate people a Mafia. They are rich helpless people looking for a place to invest their money.
Check my earlier post on Real Estate Mafia and Share Trading Mafia
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13 comments ↓
Kenney - You have to add a very crucial point - the buzz. Look at the Cochin, almost every single poor sod who is pumping money in believes that paper projects like the so-called Smart City are going to bring in zillions of job in the next year or so. The owner of one of the leading builders in Kerala once tried to convince me that there were already 100,000 techies working in Cochin and that Wipro is building a centre for 100,000 people! The truth is that the respective numbers are 7000 and 6000 respectively. And that such paper projects tend to remain on paper, just as the TECOM venture is still on the drawing board 2 years after the signing of the contract. The kind of hype projected by the real-estate industry is almost too much to believe, if you are a sane man. Unfortunately, the image is so well built, that few people choose to take a second look and fall hook, line and sinker for it. Anyone who has been to the major cities in India will find it surprising that 8 or 9 out of every 10 billboards in Cochin are of builders!
And it is not that the property industry in Kerala is not suffering in this down turn. DLF opened its Kakkanad project at about Rs 2850/Sq ft but has now cut its “launch” price to Rs 2350/Sq ft. Similarly, major builders like DLF, Puravankara and Prestige are carrying significant inventories because demand has tailed off.
Sure, there might be lot of money out there but that doesn’t mean it has to be thrown away. Places like Kakkanad and Pallipuram will have real development coming up, but the asking prices have run away from reality in quite a few places. There needs to be a correction.
And from my perspective within the industry, everybody has realised it is long due and may indeed be already happening.
// Ive heard that there are labour problems here. Is it safe to invest here”. //
We dying to vallarpadam and vizhinjam ports … and cochin shipyard has got hell lot of problems, which increased very recently .. strikes hit the port a lot .. so, thats how Kerala is ..
good thinking..
kenney , good thinking
There is a key point that you had failed to touch upon here.
“Think of an NRI who can pump in 20 to 30 lakhs every year”
- Me personally being an NRI working for an MNC in the US of A at a senior management position, I dont think that kind of money can be generated annually in any economy US, UK or Middle east- just from your salary/employment. Yes, that can come from entreprenuers or people who run businesses. But what percentage of an average NRI Malayali is of that capacity? My guess work would be a 10-15%
I have had personally known people who dropped off from school and had been jobless for quite a lot of time. And one fine day they decide to go to ‘dubai’. A year later, they come back with an investment capital running into crores. Where does that money come from? Is that legal?
Do you know where the costliest land deal in Kerala had happened so far? It is not Kochi or Kakkanad or Thiruvananthapuram or Kozhikode. It happened early this year in a small village called Koppam - border of Palakkad dist. The deal for 4-5 cents of land. The deal was around 2 crores for a cent!!! “Mohavila” as you call it in malayalam.
If it was you or me, earning a legitimate income - would you be paying such a big sentimental value price for any piece of land? whatever be the background? I will not. because I know that my income is my sweat. If somebody has not really sweated for their money, they might…
So that is the point!
- Santosh
@Santhosh
I know NRIs who invest 20 laksh every year here. Might not be a single person income, but a familes income. They are not entrepreneurs or business people. As a coincidence My cousin yesterday close an investment stuff with an NRI in cochin in which he will invest 10 lakhs every year in some scheme from SBI Life.
Regarding going to dubai and returning with crores - Even my father has this notion that people who get rich quickly are always doing it by illegal means. Its a typical jealousy scenario. There are illegal activities going on, but that doesn’t mean every one is doing it.
There are legal ways of getting rich quickly.
Income = effort (Totally wrong). Making money is an art in itself and it not at all proportional to the effort you put in.
The intention of my post was to point out a scenario in Kerala where people hesitate even to start a “Murukkan kada”.
I have to disagree with Santhosh on this.
Investing 20 lakhs a year while working in the US is a piece of cake if you are single. When you start a family, it gets tighter but assuming you also go up the ladder, it is conceivable.
@Kenney;
I guess you got me totally wrong. I did not equate income to effort and neither am I jealous.
I myself am an avid investor & I would put in my money only where I think it would give me the returns that I plan for.
My point is that if somebody is putting in money - that too to the tunes of crores - for its sentimental value, it is difficult to believe that you earned it yourself. I think you agree to the point that any investor would want to get returns from the investment.
On the NRIs part, I did not say that they cannot invest. Take a look at the NRI malayalees. What percentage of the total does these investors constitue? (I might have gotten it wrong with the salaried class, may be)
Thanks for responding!
//No point in calling the real estate people a Mafia. They are rich helpless people looking for a place to invest their money. //
What a way to define “Real Estate Mafia”.
Quality thoughts there, Kenney.
“One year back real estate business took a hit all over India except for Bombay and Kerala.”
Cant quite agree with this. Real estate is really facing a slowdown in kerala.. I know many people working as agents. They used to make avge 3-5 transactions a month, now they telling like.. not even a single transaction in last 5-6 month..
We had a bit or property near our home and a year back i used to see 3-5 people coming to our home “asking is it for sale? ” everyday!! We said it was not for sale.. BUt now as i need money for further studies we called them up and said this plot is for sale. and none has even turned up!!
Now govt has put a valuation for all properties and tht much amount should be shown in agremetn..and some other tight rules also made.. SO its now difficult to find much transactions.
Its now difficult to put ‘black money’…
The biggest attraction of real estate is that.. its the best place to invest black money.. U can invest black money in banks/or shares..so only way is real estate!
A very interesting story about bankruptcy explains the problem USA is facing currently :: I got this through a forwarded mail. But this makes sense and we can foresee this in Kerala’s case because the supply of land is smaller and finite and could be compared to an island.
====================================================================
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.
(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to C’s mind. “Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.”
(8) A also thought the same way.
(9) Nobody wanted to buy land anymore.
* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.
(10) So, who has stolen the 3 dollars from the country? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
* A owns the 2 coins; his net asset is 2 dollars.
* B is bankrupt; his net asset is 0 dollar. (He lost everything)
* C got no choice but end up with a land worth only 1 dollar
* the net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) when a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island’s own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land goes up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depends largely on psychology (or speculation).
Kenny, if someone told you that Kerala real estate is still rosy it is a very very wrong info.
Even the no: 1 player in the Kerala market is struggling to sell even 25% of what they sold this time last yr. Look at how dull and drab the past Onam was…This is the worst Onam i remember as far as real estate is concerned; with no major announcements except a couple here and there.
Prices have fallen from 3000 around to 2000/sq ft.. The situation is so bad that one of the major real estate developer in Cochin decided to sell off their land instead of launching a new project! Imagine that! Look at what DLF has done.. slashing around 600-800 off their sq ft rates..
But I’d say if you want to buy one this is the best time…provided you have the liquid.
Flats are a bad investment cos they can be constructed as and when required. But land is different. Did land prices fall anywhere in Kerala ? Transaction volumes may have decreased, but land prices are still going up.
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