The Right Combo?

The Indian cricket team management has been struggling to arrive at a strategy in terms of the number of bowlers to be included in the playing eleven.

For me it is very simple, we should always go with 7 batsmen (including our rockstar wicketkeeper). In Tendulkar, Yuvraj & Ganguly we definitely have the skill and experience to share at least 10 overs. For God's sake, Tendulkar has more than a 100 wickets in one dayers! I am sure if he had been bowling regularly, he would have had more than 250 to his credit today :-) Ganguly is a pain in the **** with his slow medium deliveries and Yuvraj has proved to be an effective slow bowler more than once. I would go with 4 regular bowlers even if it is a belter of a pitch.

Agreed that once in a while there will be situations where part-timers (read Yuvraj) will get hit for 5 sixes in an over, but we will also have an extra No. 7 batsman (read Robin) in the team to see us through ...

Bangalore Real Estate - Hot or Not?

It's been long and I am back with an interesting topic - real estate situation in Bangalore. We have had a BIG BOOM in this sector and prices have at least doubled in all major cities in India over the last 2-3 years. At least in Bangalore, this has been a topic of dicussion in almost every (guy) get-togther apart from discussing the extra-ordinary hikes some of the software professionals have got in recent times.

Well, just like on Sensex, there are different opinions on whether this boom is here to last and when will the slide down begin. I happen to have an opinion as well :-) It is obviously very tough to predict anything in a sector such as this even for so-called experts who are tracking everything from the global economy, earnings & spending trends, SEZ plans across cities, infrastructure projects, consumer confidence and so on. Let me state that what I am about to write is worth nothing ... it is just an opinion of a person who is not even tracking anything relevant :-)

In my opinion, the real estate in Bangalore, though a little expensive, is actually a better buy for an investor than one in cities like Mumbai & Delhi. My opinion is based on 2 facts -

• P/E Ratio
• Demographics

Let me elaborate on these two points now -

P/E Ratio:

For those who don't know P/E refers to the Price to Earnings Ratio and is very commonly used in the stock market to pick the right stocks. For real estate sector, price is the buy price of a property and earnings in the annual income that you can potentially get out of the same. A low P/E ratio in most cases indicates a potential good buy and a high P/E ratio indicates an expensive property.

About a year year back, Bangalore, by this parameter, was an excellent buy. You could buy an excellent 2BHK apartment for 30 lakhs and you could expect a monthly rent of around 10K which amounts to a P/E of only 25. The situation today is a little different and a little more expensive. An excellent 2BHK would cost you around 45 lakhs and a 3BHK around 65 lakhs (service tax & VAT have added to the cost as well) but the rents you would expect remain the same - around 10K and 15K for a 2BHK and a 3BHK respectively. This amounts to a P/E of around 35 which is high but again not too bad, if you manage to find a tenant within a few months. But, this definitely indicates there is no room for prices to grow in the near term.

Let us compare this to Delhi/Gurgaon/Noida where a very good 2BHK partment will cost around 45 lakhs but the rent that you would get will be around 7K making it a P/E of over 50. That is sure shot expensive and clearly indicates that there is not enough demand to justify such a high price.

To summarize, Bangalore is definitely a little expensive today. I don't see the demand diminishing in near future (I will explain why in my next point) and hence if the prices remain where they are or actually slide a little bit, you will get a handsome return on your investment. If you plan to buy one to sell again in a year or two, this is not a good time to buy. I do not see prices rising significantly in the near future but I definitely do not see a major slide from the current levels as well.

Demogrpahics:

The average consumer in the real estate sector in Bangalore is an IT professional who has high disposable income and is most likely not even married. He is today sharing an apartment with a couple of his friends and is almost sure to either move into a separate apartment of his own or on rent in 1-3 years after getting married (unless ofcourse Bangalore traffic drives him away to Chennai or Hyderabad). Banks are willing to approve his loan and he is definitely capable of re-paying the same in 15-20 years.

This is the reason why I do not see the demand going down significantly in near future. Ofcourse, the Indian IT industry cannot grow (in terms of number of employees) at the rate it currently is and once the current population grows a little old, this demand is bound to come down but that is at least a good 5 years from now in my opinion, if not later.

Last but not the least, if you are in Bangalore and plan to buy a house to live in, don't care for what experts say and just go for it as the prices will always rise in the long run and the earnings in this case is anyways always zero :-) It is not very easy to time the market and today is always gonna be worse than yesterday ...

:PM