Anyone think that the prices of flats will fall 40% from the mid 2007 prices ?
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  • No problem. I read you clearly :)

    Originally Posted by connect2sam
    Please ignore my typo and mistakes in my post.

    I had to try several times before I could post a message and in the process I lost the plot and is riddled with mistakes and half of my post does not make sense anymore even to me !

    Thanks,
    Salim.



    Dear Salim (and all the others on this post),

    I cannot appreciate one thing - though I understand it.

    Why are all you people SO KEEN ON THROWING AWAY YOUR SAVINGS in double quick time!!! :D

    Its all to do with this Western, immediate-satiation craze that has caught you people and ruining you all (me too sometimes :)).

    As UscoKumar said, growth of Assets like Property is only 10 - 12 % long term compounded. In between it goes like a yoyo, swinging wildly up for a few years and then down for a few. So, you got to have considerable skills and apply it consistently to make your wealth grow solidly. The best way to grow wealth is to put it in areas you understand best at low prices and give it time to grow! There is no substitute for this!

    Simple answer to simple question regarding what to do with your savings.

    The only asset that will give substantial growth in the next 4 years will be bullion. Buy Gold (and silver to a lesser extent). Do not buy paper gold (ETF, Gold Bonds and other promises with underlying gold). Buy physical Gold. As far as possible, buy Hallmarked Gold. This comes minted in switzerland or wherever, has a certificate of purity from the World Gold Council and is generally accepted anywhere in the world at low discounts. Instead of Bars, buy coins - the best ones are Krugerands (SouthAfrican currency), Maple Leaf (Canada), etc. Do not put more than 25% - 40% of your savings in Gold. Keep the rest in safe fixed income securities. The Rupee's buying power will increase quite a bit vis-a-vis $$$ in next few years.

    There are reasons for my being so bearish on Land, Property and every other asset other than Bullion. This Bear Market will probably go on till 2010 - 2012. America will get terribly impoverished. The Dollar is headed (technically) for the exchange rate of Rs 25 - 30 per dollar (thats 50% of today's rate). At this rate, all our Export Industries will get devastated and I believe almost all profits will be lost. Import bill will soar - especially crude oil. Our balance of payment will become critical and we may end up at the same level as early 1990s as far as Foreign Exchange reserves go.

    IF this happens - and there are a whole lot of incredibly smart and experienced Economists and other wise people who believe this is inevitable - then I'm afraid Real Estate will go much below even my deadly levels of decline (50% to 80%) and stay there for quite some time to come before recovery.

    Btw, Gold, which has gone from $230 per ounce in 2000 to $810 today will probably reach anywhere from $3000 - $6000 in this timeframe!!! Buy it gradually, every month one coin of 5g to 10g, whenever price in market declines a bit. In anycase, buying Gold will also get other's support since Gold is the only asset that has higher standing than Land in our society.

    This is my simple advice. I follow my advice. You must take your own decisions.

    cheers
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  • Your post suggests a substantial change in the mind set we've held in the past 5-6 years. I have seen only .com bubble. I do think this is way too worse than that. But what you are saying is in essence doom and gloom.

    You mean gold could be the next multi-bagger :D (a word that you can hardly use for the next few years). Well my savings is in NRE/NRO accounts in India. I would prefer to buy physical gold using that fund. If so what options do I have i.e., how do I buy physical gold in India through Internet sitting in London ? Or any other options that come to your mind ?
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  • Hi Salim,
    Do you want to buy real estate for investment purpose? or for own use?
    If its for investment purpose, I second wiseman's suggestion. But if it's for own use, I have something else.

    Reason is, you are not going to see any profits or loss till you sell it! If you buy for own use and have no reason to sell it, then atleast you can buy, esp so, as it's not through bank financing but through your own money. But you can use the downward spiral to do the following.

    1. A property that not only satisfies your current needs, but also futures'.
    Like a great school for the kids, a tennis coaching academy etc. As the
    decline is going to affect ALL kinds of properties, following this will
    greatly reduce your necessity, if at all, to sell the property in distress.

    2. Hand pick the property that you like without hurrying to buy. This has
    already become a buyers market and gone are the days a few days of
    wait would make the builder hike the price or someone grab it!
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  • Originally Posted by wiseman
    Dear Salim (and all the others on this post),

    I cannot appreciate one thing - though I understand it.

    Why are all you people SO KEEN ON THROWING AWAY YOUR SAVINGS in double quick time!!! :D

    Btw, Gold, which has gone from $230 per ounce in 2000 to $810 today will probably reach anywhere from $3000 - $6000 in this timeframe!!! Buy it gradually, every month one coin of 5g to 10g, whenever price in market declines a bit. In anycase, buying Gold will also get other's support since Gold is the only asset that has higher standing than Land in our society.

    This is my simple advice. I follow my advice. You must take your own decisions.

    cheers


    Wiseman, nice post once again. I have a question though.

    Regarding Gold, i don't know how you came to this conclusion. If gold reaches anywhere between $3000- $6000 in a short period (< 5 years), then either $ value has to drop(at least 50%) drastically against all currencies or Gold will NOT be priced or pegged(i don't know if this is right word) in US $. Do you think it will happen within the next 4 to 5 years?

    Rupee value against US dollar was around 48 and 49 back in 2001 and 2002. Gold price at that time was hovering around $200-350. Gold appreciated 5 times or 500% between 2002 and 2008. But dollar against rupee has depreciated just around 25% (FY02-08). Now do you think US $ loosing 50% of its value will increase the Gold value to $3000 to $6000?

    If that’s the case then Gold would appreciate another 500% to 800%? Can you show some numbers so that I can better understand this theory?

    Thanks once again for your excellent post.
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  • Originally Posted by wiseman
    Dear Salim (and all the others on this post),

    I cannot appreciate one thing - though I understand it.

    Why are all you people SO KEEN ON THROWING AWAY YOUR SAVINGS in double quick time!!! :D

    Btw, Gold, which has gone from $230 per ounce in 2000 to $810 today will probably reach anywhere from $3000 - $6000 in this timeframe!!! Buy it gradually, every month one coin of 5g to 10g, whenever price in market declines a bit. In anycase, buying Gold will also get other's support since Gold is the only asset that has higher standing than Land in our society.

    This is my simple advice. I follow my advice. You must take your own decisions.

    cheers


    Wiseman, nice post once again. I have a question though.

    Regarding Gold, i don't know how you came to this conclusion. If gold reaches anywhere between $3000- $6000 in a short period (< 5 years), then either $ value has to drop(at least 50%) drastically against all currencies or Gold will NOT be priced or pegged(i don't know if this is right word) in US $. Do you think it will happen within the next 4 to 5 years?

    Rupee value against US dollar was around 48 and 49 back in 2001 and 2002. Gold price at that time was hovering around $200-350. Gold appreciated 5 times or 500% between 2002 and 2008. But dollar against rupee has depreciated just around 25% (FY02-08). Now do you think US $ loosing 50% of its value will increase the Gold value to $3000 to $6000?

    If that’s the case then Gold would appreciate another 500% to 800%? Can you show some numbers so that I can better understand this theory?

    Thanks once again for your excellent post
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  • All commodity prices were taken to unreasonable highs by hedge funds and speculators in the past few years - gold included. These are not real prices based on actual demand and supply.

    When these hedge funds have lost money in real estae they could not keep jack up commodity prices and the reult free fall of commodity prices. Now no fund, investor or bank is going to invest in Real estate for obvious reasons. The usually safe place put your money is a bank but in todays situation no one can park huge funds in a bank with confidence since any bank may fold anytime and you may lose all your money (beyond FDIC/DICGC insured amount).CITI's razor thin escapade was the scarry example. (Now I cannot fill up my "justvoip" credit because they have removed accepting credit card payments and the option is not available!)

    The next place to invest is in commodities and they all had a free fall and there is only downward trend due to all its supporters themselves need support as they are without money.

    The only relatively risk free option is Gold at this situation. So actually although gold price was also jacked by hedge funds it issustaining its level since it has found a new set of supporters in safe-haven seeking investors. However, if banks' situation becomes clear in a few months and the economy stabilises, gold price has to fall down as investors will move to bank deposits or even real estate at reduced prices.

    I do not think US dollar will lose strength as can be seen from recent past when dollar is gaining strength against all currencise. This is again big fund managers' play. George Soros, known as "the man who broke Bank of England" declared 4 years back that he was dumping USD for GBP and Euro and we saw the result. Early this year he declared that he was dropping GBPO and EURO for USD. I believe US Dollar will get stronger irrespective of US economy.

    I could see gold price jumping from US$ 500 levels on hourly basis a few years back which clearly showed speculators hand in its price increase. I had to rush to the gold shop to get gold bars as the price increased 4 times a day and by the time I reached shop the price was already up 4%!.Gold has to come down in US Doallr terms from this level but slowly.
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  • Pride always goeth before a fall ...

    Folks,

    Apologies for these long posts that have not much to do with Real Estate. I will keep these restricted and still think they serve a purpose of educating people and saving lives, if not making you rich ;).

    How quickly things change! Just in Sept, our IT bigwigs were all-knowingly telling everybody, no pink slips and we will be hiring 10s of thousands of people.

    Then last month, Infy started telling its employees, take a sabatical and we will pay you half your money.

    Today, Kris Gopalakrishnan is telling employees, just save even $10 per head (one time) and that will amount to $1 million and that is a big saving!!!

    Can you imagine? Now $1 million - what these people would have sneered at just yesterday - has become a big saving today?!!!

    Folks, the picture - which was always clear to me - is getting clear for everyone else. Salim told us he has seen 2001 bear. Do you remember Salim, how the IT Industry blundered through that period saying, "poor visibility" to "No Visibility" as things got worse. Well, guess what! This time around they thought they had got the handle right. But they do not understand these kinds of bears because they have always been spoonfed (due to this price arbitrage) and there is no understanding of real market conditions in a competitive environment!!! They will never see the approaching tsunami till they take in the water through the nose :p.

    So, the theory holds. Just look at the EcoTimes today. When, 2 years back I was warning of this giant Tsunami coming (and it looks bigger as it approaches closer), there was not even a single bad news in the papers and people looked at me like I was nuts. Today, ironically, when it is nearly too late to do something about it, there is nearly no good news you can see on EcoTimes front page. Now they ask me, "what to do"?

    This is the central message I'm trying to get to you guys. If you are early enough, you can get out of the way. When it is nearly upon you, only prayer will help. And when the whole 5 Billion are praying, even God will be overwhelmed by the demand!!!:)

    Now, coming to Sovi. Yes, you are right regarding buying property for personal use and not looking at price under normal conditions. But this is not anywhere near normal. And it is going to get much worse! My simple question to you is this. There is every likelihood that, having bought a home now (putting a down payment of 10 lakhs) and paying 40k mnthly on a salary of say 70k, what will you do if the property price declines 30% from here (so flat price comes down from 50 lakhs to 35 lakhs) and your salary gets cut to 40k from 70k? At best you can hold on for 2-3 months (and throw away even more of your precious savings down the drain). Then you will have to let go of your property, lose your 10 lakhs as well as all the EMIs (could be 5 lakhs if you have been paying for 1 year). And go back to living like you did when you left college and started up. These are such times coming up!!! Taking up a large debt load now is as good as commiting suicide - even if it is for living purposes and not investment! Hope the message is clear. The mindset must change NOW from buy, buy, buy to save cash, save cash, save cash!!! How many ways do you want me to tell this? I see too many people still sitting on the fence in denial thinking, "will it really go that bad? I have not seen that in last 5 years. Maybe, if I did not buy today and it goes up, I will miss again!!!" Slap! Change it!

    To give you a picture of salary/job losses, please check EcoTimes today. Real Estate salary cuts are going down to 50% of current salary (industrywise - and Cushman can do nothing about it). IT companies are desperately looking to cut costs even down to small amounts wherever they can. Car, TW sales are down from 20% to 40% in Nov (at this killer level, what do you think will happen to auto industry jobs and salaries?). And guys, this is just the beginning. Watch out below!!!

    Salim and Strongsville. Actually you guys are at even greater risk slightly ahead of us in India since the recession is much more severe there and your cost structures are bad for you individually (remember the 3 ft wall and 300 ft wall comparison?). You might actually have it in your mind the option of returning and getting a job here for a few years (many of my friends have already done so) and it need to be done early while jobs are still available. Just a thought since I did something similar 2 years ago, when people thought I was nuts and now they think they too should be doing the same :D.

    GOLD
    For over 5000 years, the only thing that has remained stable and acted as universal store of wealth is ... GOLD! To answer your question, Gold is not going up in value. Rather, it is the Rupee and $$$ which is coming down in value. Get this firmly into your minds and it will help a lot in clear thinking later on. This is why currencies come down:

    So long as $$$ was pegged to Gold, the amount of currency in circulation remained stable and wild swings were avoided. Now get this! For 99 years in the 1800s up until 1920s, the $$$ swung against Gold between $20.52 to $21.49 per ounce. Can you believe it? There was not more than a 5% swing from top to bottom in the ratio for 99 years!!!!!!!

    When Nixon de-coupled $$$ and Gold in 1971, the exchange ratio was $35 per ounce of Gold. The 1970s exhibited similar characteristics to this decade. Bear markets, Oil Crisis, years of Anaemic growth. And one more thing! From $35 in 1971, Gold touched a high of $850 in 1980 (a jump of 2300% in an otherwise dead market! Wow). And here was the progression. From $35 it went to a high of $140 in mid 1974 (400% jump). From here it declined to around $100 in latter part of 1976 (a 28.5% decline). From here it jumped to $850 in 3 years by early 1980 (a 750% gain).

    After this, while the recently demised bull market started in 1982, Gold lay low coming all the way down to $230 in 2000, till the 20 year old bull market ended. But when the bull market ended in 2000 (between 2000 and today, its considered a secular bear market since real value has eroded, though $ value seems to have gained, due to printing of excess $$$) gold took off. Now watch the fun:

    From $230 in 2000, Gold rose all the way up to $1030 this year (a 450% rise). From there it descended to $740 just 2 weeks ago (a 28.2% decline). This seems to have become a bottom, though its too early to say. See the ramarkably similar behavior of Gold even though markets are not exactly like 1970s!

    Under the extreme stress conditions forecast, expect Gold to at least match the performance of 1970s if not beat it outright. I will be conservative. So I put it down to a rise between $3000 (a 400% rally) to $6000 (an 800% rally). Actually, when panic hits all markets globally and everyone rushes to Gold, it just might go even higher than that (but by then you should have long sold and gone).

    I have been reccommending my clients/friends to buy gold from $450 more than 2 years ago. They seem much happier than other investors today! :D

    Generally, do not buy paper Gold! No ETF, Gold Bonds and such nonsense. Only physical gold (Govts have been known to renege on contracts). Coins are best (as they can be easily sold when you need the money and are easily stored). Buy only Hallmarked Gold (certified purity) with certificates from World Gold Council. Buy small denominations (5g and 10g are best). Buy like a SIP - fix the monthly amount and buy as many coins as it brings, generally buying when there are dips in prices. Other popular coins are Krugerrands (SouthAfrican), Maple Leaf (Canadian), American Eagle and Double Eagle, and so on. Do not buy more than 25% to 40% of your wealth in Gold (you need cash to eat, can't bite into gold when you need to).

    Strongsville, here are your numbers :). Salim, yes, the mindset change (like it or not) will have to be extreme - and not just substantial. Sovi, get used to the fact that putting food on the table regularly will be our dominant thought for the coming few years. Next is repairing of clothes to make them last longer. We will, willy-nilly, get accustomed to renting as a lifestyle for a few years more.

    Oh, yes. And one more thing. Strongsville. $$$ value will head to 50% lower in the next couple of years. In Nov we have seen that Exports has already fallen 12% (thats very big). This is when $ has already gone to Rs 50 per, which is actually beneficial to Indian Exports. Just imagine what would be the state of our Exports Industries (IT, Textiles, Gems & Jewellery, etc) and the Import Bill as well as the price of petrol and Balance of Payment when the $$$ goes down to say Rs 25. We will have gone back all the way to early 1990s in Foreign Exchange Reserves, IT Salaries as well as Economic Growth. Check those numbers.

    Lets hope for the best. Prepare for the worst!

    cheers
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  • Wisey, if you go through my posts again, I suggested buying only if it's not through loans and only if its absolutely essential and if he is not going to sell it in near future!

    I'm totally against buying RE through debt! To substantiate, why we are getting into one of the 'darkest phase', find below the some numbers.

    In 1930, the debt to GDP ratio was about 2.5 (and then it started falling during the great depression) and it took more than 70 years to reach the same level of bullishness (2005). Alas, apparently no body leant from the mistakes and the Debt-GDP ratio overshot to 3.5 by 2008! Think about how many more years it might take to return to that level of bullish outlook again! Though I sound extremely pessimistic here, my biggest worry is, we may not see another similar boom in our life time!
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  • buying gold

    Dear friends,

    I would like to add a few points to wiseman's comments on buying
    gold.
    when people talk about gold prices going up or down, it is actually the
    value of the currency which changes and not the value of the gold.

    The value of gold always remains as it has done for thousands of years.

    Another important thing to remember while purchasing gold is that gold cycles are very long( thirty years) as compared to real estate cycle which
    is about 18-20 years.Therefore buying gold should not be considered a short term investment.
    Investing in gold should be considered asset protection rather than
    actual investment for returns.I'll try to drive home the point with an example.
    Imagine your great grandfather going to the market with ten rupees
    in his pocket.what will he be able to purchase ?Now imagine you are
    going to the market with the same amount !!!What can you purchase ?
    Now i'll reverse the question and ask you to imagine your great grandfather going to the market with a gram of gold ! If you go the
    marketplace with the same 1gm of gold you will still be able to purchase
    more or less the same things your GGranpa could have done !!!!

    therefore buying gold should be considered asset protection.
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  • buying gold is asset protection

    hello friends,

    I would like to add a few points to wiseman's suggestions.
    When you hear reports that gold price has gone up or down what it really means is that the value of currency has gone down or up.gold is stable and its purchasing power has remained so over centuries.
    Purchasing gold should be considered asset protection rather than investment for returns.

    Moreover,it should be borne in mind that gold cycles are longer(thirty years as compared to real estate cycles which last 18-20 years.
    Therefore buying gold should be a long term plan.
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  • Insulating yourself

    yet another very good analysis from you Wiseman,thanks.

    GOLD has always been used to hedge against inflation and falling economy.All countries buy and maintain huge amount of Gold reserves for the same reason.They do it despite buying strong foreign currency and pegging against Dollar,Euro.Historically, we have seen that the first thing any king or ruler would do after defeating a kingdom/dynasty in a war is to loot them of its gold and precious stones.

    Without hijacking the thread from the topic much, I would like to add upon that it will be best if Hallmarked Gold could be bought from a renowned Jeweller who can give a certificate of purity instead of buying directly from Bank.

    The reasons are as follows

    1) The Price for Gold with the jeweller will be around 5% less.Banks charge extra as premium for giving the certificate of purity.
    2) Bank do not have buy back facility for Gold.
    3) The Gold bought from bank will not be bought by the jeweller at the market rate, whereas if its bought from a jeweller, the same jeweller would buy back the gold any day at the prevailing price.

    One of the main attractiveness of Gold is that it can be considered liquid and can be converted into Cash anytime.

    In Real Estate context, these kind of liquid investments would come very handy in prepaying your loan amount to reduce the burden of your EMI.

    A huge risk many loan borrowers overlook is that if the price of the house were to reduce by 40%, with value of Home equity depreciating due to the correction, The lending banks as per "Depreciation of Security" clause reserves the right to ask the borrowers show and mortgage more security or pay the difference immediately to keep their exposure protected.With sub-prime mortgage crisis creating havoc everywhere the scenario is very possible.

    With the banks facing huge crisis, factors like high interest rates and new loan disbursements in its all time low.Banks are already showing reluctance in extension of Loan tenure,agreeing to only payment of interest for a year or two etc like before.

    The Trigger for price crash due to Sub-Prime Mortage crisis was when the borrowers were asked to repay huge amount of the principal.They werent prepared and resulted in increase in defaults and foreclosures.
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  • I would like to add my thoughts on Gold.

    No doubt gold is the best assest during this crsis. I do expect gold would hit 1500$ per ounce(31.1gms app) by 2011. Today it is 770 $ app.

    Many suggest that buying physical gold is a good option. There are some points to be considered while buying physical gold.

    a) There is a big spread between a buy and sell. You pay extra above the market spot price when you buy and when you sell , you will get less than the market price.

    b) Gold is not widely used in Industrial applications, gold has the value due to scarcity. Gold is been bought by banks, governements, FI's. IMF. During a crisis like this, with job cuts, no cash movement, who will buy your gold. Do you think it will be very easy to sell the gold. I doubt to whom you will able to sell the gold and cash it.
    Last month when gold touched 690 $ per ounce, In UAE a friend of mine rushed to the shops to buy physical gold ( coins and bars), He searched more than 15 shops, he could not find one. The answer was No stock. Few days weeks latter the price raised , and the gold was availabe on the market. The traders and shop owners know how to play with gold.

    c) Again gold as a commodity, it too has boom and bust cycle. So holding pyhsical gold and not selling it at right time will be a point to consider. Gold on a long term yields around 6-8% returns ( considering which span of yrs is taken).

    d) Physical gold has to be also secured properly (thiefs etc).

    I strongly support silver, which has wide industrial use and demand exceeding the supply, but I am not sure how to invest in silver in India.

    Gold is a good investment right now, but one has to have a plan (exit) correctly.

    As always do your own research.
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  • Wiseman, Thank you for providing insight into the current economic situation. Have learnt a lot reading through your posts. Admire you for taking time out of busy schedule in educating novice investors or buyers. Please continue to do so.

    I have question on GOLD buying. You suggestion is to buy in smaller quantity like gold coins instead of the bars. But, the coins cary higher premium than Gold bars. Don't they? The bigger it is, lesser the premium. Why do you suggest otherwise?

    Thank you.
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  • While, in general, I have been in full agreement with Wiseman’s messages I totally differ in respect of his prediction for Gold price for the following reasons.

    All commodity prices were taken to unreasonable highs by hedge funds and speculators in the past few years - gold included. These are not real prices based on actual demand and supply.

    When these hedge funds lost money in real estate they could not keep on jacking up commodity prices and the result was free fall of commodity prices. Now, no fund, investor or bank is going to invest their money in Real estate for obvious reasons. The usually safe place to put your money is a bank but in today's situation no one can dare to park huge funds in a bank with confidence since any bank may fold anytime and you may lose all your money (beyond FDIC/DICGC insured amount).CITI's razor thin escapade was the scarry example. (These days I cannot buy my "justvoip" credit because they have removed accepting credit card payments and the option is not available!)

    The next place to invest is commodities and they all had a free fall recently and there is only a downward trend due to all its supporters themselves need support now as all of them are without money.

    The only relatively risk free option is Gold at this situation. So actually although gold price was also jacked alongwith other metals by hedge funds it is still sustaining its level as it has got backing from a new set of supporters seeking safe-haven. However, if banks' situation becomes clear in a few months and the economy stabilises, gold price has to fall down as investors will move to bank deposits or even real estate at reduced prices.

    I do not think US dollar will lose strength as can be seen from recent past when dollar is gaining strength against all currencise. This is again hedge funds' play. George Soros, known as "the man who broke the Bank of England" declared 4 years back that he was dumping USD for GBP and Euro and we saw the result. Early this year he declared that he was dropping GBP and EURO for USD. I believe that US Dollar will get stronger irrespective of US economy. In today's economy prices are not related to its worth in the short to medium term (5 years!)

    I could see gold price jumping from US$ 500 levels on hourly basis a few years back which clearly showed speculators hand in its price increase. I had to rush to the gold shop to get gold bars as the prices were revised 4 times in a day and by the time I reached the shop the price was already up by 4%!. But once the confusion is over Gold has to come down in US Doallr terms from this level.
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  • gold buying

    Is this a real estate forum or a bullion forum? Let us stop the SUBJECT of GOLD and come back to real estate discussions.
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