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Archive for February, 2010

Incredible India: A Bubble About to Pop?

February 19th, 2010 6 comments

Can you imagine being able to rewind time and watch the U.S. real estate bubble as it’s about to pop? While none of us has the ability to time-travel just yet, I did have the opportunity to witness something remarkably similar to the U.S. real estate bubble while on a recent trip to India with my family.

Just like tech stocks were the talk of the late 1990′s in the U.S. (everyone from your barber to the grocery store clerk had a winning stock pick and was a market expert), real estate is the current hot topic of conversation in India. This in itself, in my opinion, is indication that a growing bubble is afoot – when everyone from the professional investor to the gardener is talking about how to make lots of money in a particular asset class, the prudent investor should start looking for an exit.

Another factor supporting the not-so-distant decline in Indian real estate prices is the excess leverage in personal balance sheets. Just as we saw in the U.S., residents of India are now taking out mortgages that they can just about afford. The availability of credit and the shifting mindset in favor of borrowing (traditionally Indians like to pay for everything, from groceries to housing, with cash; this trend is rapidly changing with the younger, more affluent middle class opening up to mortgages and credit cards) is creating demand for housing, and pushing up prices. The opening up of credit is actually a good thing. The issue is that people can barely afford their mortgages. So, when the Indian economy slows a bit and people lose jobs, their mortgages will immediately be at risk, just as was the case here.

Excess foreign invesment also plays a significant role in Indian real estate prices. It’s a well known fact that investable assets chase returns. In this instance, NRI (Non-Resident Indian) assets that had, until recently, been invested in the U.S. and European stock markets, are migrating to India. This is natural; older Indians living abroad have accumulated a lot of wealth, which was parked in cash, gold, and financial markets. With the collapse of equity markets around the world and the drop in interest rates, there aren’t many good places to park cash. In such an environment it’s no surprise that these assets flow into housing “back home” in India. The older Indian population applies the following logic: “Should I chose to move back home once my kids are settled, I’ll have a place to live. If I choose not to move back home, I can always sell the investment in Indian real estate for a handsome profit since the market is so hot”.

The net effect of these factors is that real estate prices in India have about tripled over the last three years. This is an alarming rate of appreciation given that I see no sustainable demand for real estate. Yes, it is true that many corporations are moving to India and the economy there is growing at a brisk rate. However, the jobs created by these actions aren’t enough, in my opinion, to support the kind of national real estate price appreciation India is experiencing. Rather, I’m concerned that there are too many speculators in the market, which will result in an inevitable, and painful crash. In addition to the foreign speculators I mentioned above, there are also the domestic type – those buying a house with the hope of selling it in the next six months to a year and turning a profit (much like what we saw in the U.S.). In one conversation I learned that about 40% of the purchasers in a new subdivision that was being built were investors; they wouldn’t actually be living in the house. 40%! That’s huge! 4 out of 10 homes will sit empty when built – either awaiting immediate sale by a domestic speculator, or awaiting an NRI family that, in a few years, may live there or, in the more likely scenario, will sell the home to turn a profit.

The risk of this speculation is clear. As soon as the Indian economy slows and those young, affluent borrowers face difficulty paying the mortgages they can barely afford now, there’ll be panic, fueled by memories of what happened in the U.S. This panic will be further exacerbated by the immediate dumping of homes by investors who fear the loss of capital experienced in 2008-2009, creating a snowball effect in the decline of real estate prices. Though I can’t say for certain when this will happen (if I could, I’d have made millions on it), my intuition is that it’ll be within the next 3-5 years.

Though the issue in India is certainly not identical to what happened in the U.S. (high risk mortgages aren’t as prevalent as they were in the U.S. and the secondary mortgage and derivatives market is no where near as large as it was in the U.S.), there are many alarming similarities. That being the case, the prudent investor should be mindful of the similarities and be aware and history can very well repeat itself.

Photography findings

February 2nd, 2010 4 comments

I’ve had a lot more time to spend on photography these days. Given our recent trips to Alaska, India, and Singapore, I’ve also had the opportunity to take some pretty interesting pictures. The natural question, then, is what do I do with the two thousand pictures from these trips?

I’ve found three products that I’m pretty happy with: one for photo processing, one for Internet display, and one for making photo books.

Since I got the Nikon D200 last year, I’ve been shooting in RAW format. For those that don’t know, RAW format saves a lot more information about the picture than JPEG. RAW saves exactly what your camera sees whereas JPEG processes what your camera sees and compresses the file, resulting in the loss of a great deal of information. The additional detail RAW captures can be very valuable when you need to adjust exposure and make other fixes. The downside is that RAW files are much bigger (which is easily mitigated by ever-cheaper memory cards), and that you need special software to process RAW files (you can’t just plug in your camera and view them). I started using Adobe Lightroom, and I have to say, I’m pretty impressed (though I haven’t really used a lot else, so I don’t have much to compare to). Though the Lightroom interface leaves something to be asked for (it’s pretty unexciting and a bit complicated), it handles the task of image processing very well. The organizational capabilities are excelled, with the use of collections and keyword and attribute filtering to make it easy to find and work with photos. The editing features are also quite powerful, allowing from basic things like cropping and fixing red eyes to exposure correction and color manipulation. I’ve just started – it’ll take a while to really master all that it can do. Once I’ve got my photos into Lightroom, cleaned up (correct exposure problems, crop, straighten, etc), and converted to JPEG.

Once I was done processing our pics from Alaska I decided that I’d make my first photo book. I looked at a few options online and was able to see an actual, physical example of one service (a fellow student in a photo processing class had one) – My Publisher. I was pretty impressed with the print quality and the paper quality of My Publisher and so I gave it a shot. The software is pretty easy to use (though it certainly has some frustrating features – the inability to sort imported images so you can place them chronologically, and the changing of fonts when you add pages. I didn’t realize the second issue until my photo books actually came – with some pages in a different font! However, their customer service and support have been stellar! The product itself has been reasonable. I ordered photo books of Alaska and Singapore, and both arrived about a week after ordering. The quality came out okay – some pics looked stunning, and some showed imperfections (which I couldn’t see in the RAW files, suggesting that it was a printing issue). That said, I would like to try another service just to compare (you don’t really know if something is good or bad until you have something to compare it to). Overall, I would recommend the books, especially with the discounted pricing from Costco.

Finally, I recently opened a SmugMugaccount. I’ve had friends that have used it for years and raved about it, but I never got around to it. I decided it’s time to finally give it a try. Reading many online reviews, SmugMug beats the competition hands down. Their photo display is simple yet beautiful. There are no ads alongside your pics, and there isn’t a lot of loss of detail in the uploading and compression process. Viewers can even buy pictures from there if they’d like. Now the service isn’t free, which can be a turn off to many in the age of Shutterfly, Picasa, and many other free services. But given the ability to customize and the display of pictures, I think the price is reasonable. Customization can be done either way – either using their pre-built templates for the not so tech savvy or creative, or total customization (which, to be honest can be quite difficult) if you are technically inclined. Oh yes, the other great feature: security. You can either leave albums public, hidden (which means they’re public, but a link isn’t displayed – so the only way people can see an album is if you send them the link), or password protected (which, as the name suggests, can only be seen if you’ve given someone the password). If you’d like to see a real example, just wander over to the Galleries section of my website.

So, all things considered, I’m glad to have added some more structure to my photo workflow. I need to spend a lot more time with Lightroom to better understand all it can do for my pictures, as well as get several years of photos imported and cataloged (the latter, catalogging, is likely to never happen). I would also like to get more photo books made from past photos like our trips to Jamaica or Mauritius. So much to do, so little time!

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