You need have no fear that the real estate cycle, in reality a land
price cycle, is about to die. The (18 year) land price cycles can
repeat for ages yet, here is one reason why. Attached, I have scanned
in some figures illustrating the highway construction in India between
1981 and 2001. What is being undertaken in that country speaks for
itself, the prodigious increase in highway construction. Have a look at
the startling figure for how many cars there are as a percentage of the
population aged 15 to 64. Startlingly low is what it is. I think you'd
agree there is room for growth here.
Hyundai in Tamil Nadu has this year produced so far one new car every
minute of every day. They are looking at ways to increase production.
A Bloomberg headline for April 14 2006 in The Herald Tribune reports
"rising incomes and easier credit power auto sales in India". Easier
credit from banks is a good thing remember, it is just that when the
government granted licenses are enclosed, to give us a price in which we
can speculate, we end up with predictable cycles. Remember from my
classes, the price of a car is derived differently from the price of
real estate. Never forget this.
IHT April 17, reporting once again about India: "In a gold rush that
evokes the start of China's factory boom, multinationals like Bayerische
Motoren Werke, General Motors and Intel are locking down real estate in
Tamil Nadu, as are scores of little-known companies from South Korea to
Italy. Outside Madras, also known as Chennai, barren grazing land that
cost $1,000 an acre, or $2,500 a hectare 20 years ago sells for up to 65
times as much today."
Much of it along-side the new highways no doubt, as per in Victoria of
late. Your rock-solid, 100% certain guarantee of a land price driven
real estate cycle. The only question is, how long will the cycle be ?
We can safely assume the same is going on in China, but it is much
harder to find the charts for this. (I will never forget my 9 weeks in
china in 1986. You simply could not get a map of Beijing - the military
considered it too secret to publish.) Anyway, China have said as much
about their road building: they want to have a highway system larger
than the US by 2015 is their stated aim. Their first real estate
downturn, whenever that might be, is going to surprise them, especially
since as they are sort of Maoist in their thinking, they no doubt
believe they will be able to "5-year plan it" away. They are in for a
shock soon in my view
Note too, this process is happening world wide now, none more so than in
Brazil, where the highways through the Amazonian rain-forests are
bringing in new settlers who simply take up a plot, clear it and start
farming (soy mostly at present). It is easy to do 'cause the land is
free; simple peasants can't afford to buy anywhere else 'cause about a
quarter of what is already titled is held out of use for higher gains.
Hope you can see what this is doing to the planet... You can be certain
that whichever peasant ends up with the biggest share probably gets to
be Mayor of the region - like the owner of Park Lane and Mayfair if you
could land on them. This is so easy to forecast. (And a game I hated
to lose as a kid !)
So there is plenty of opportunity for a few land price cycles this
century. And since much of the world is locked into this speculative
process now, more so than at any time in history, the downturns are
likely to be well synchronized and more violent in my view.
All this is of course repeating what you will have read in my US history
chapters. Expect similar results for China, India and Brazil; huge
speculative peaks followed by turmoil.
Image is from The New York Times insert into the Suddeutche Zeitung, Dec
12, 2005, page 3.