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Are Real Estate Prices Going To Fall 40% by Mid 2007?

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Are Real Estate Prices Going To Fall 40% by Mid 2007?

Last updated: February 21 2009
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  • #41

    #41

    Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

    Originally posted by wiseman View Post
    One of them could be Gold going to $3000. Why not?

    cheers
    Wiseman,

    I am not differing on your view, but would like to understand this.

    If there are many jobs losses and no income, how would the demand for the Gold goes up for it reach $3000 / ounce, since nobody would be able
    to buy.

    Am I missing something.

    Ram

    Comment

    • #42

      #42

      Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

      Wiseman,

      First of all let me tell you that I would not have said "this would not happen" if you had said all these things one year.

      I have been telling and expecting these things to happen since early 2007. Except near collapse of CITI bank and GM bankruptcy, I had been telling and expecting things to happen anytime for the past two years. I sold my property in late 2007 in Chennai expecting the crash to happen or anticipating at least the appreciation to be less than bank lending rate. But with the backing of foreign funds, developers could not only hold onto prices but also incresed by 30 to 40% since then! Gullible investors buy at increased rates expecting further increase after waiting impatiently due to the forced situation created by buyers because of the holding power of developers with the backing of GULLIBLE foreign RE funds/RECKLESS managers of these funds. While we can expect certain events to happen, it may happen a year early or late for various reasons.
      (Read economic times article in October which predicted BSE Index to touch 6000 levels
      Stock prices reached ugly highs without any logic due to foreign fund flow. I consider most of the stock prices are high even now. If the price of a stock is several times the book value of the company or if the dividend return is not even 50% of bank interest rate on your investment then it is a gamble that someone will buy at better price, not the speculatin of future growth of the company or its future earnings - which is not healthy beyond a point. When the hot money flows in fast it can also flow out fast and the currency has to fall sharply in the short term. Fall in rupee value was expected since Flowing out of hot money was ceratin due to its nature and it noramlly does not happen slowly and gradually. I have seen this in 1997 financial crisis and before while in Bangkok and it is being repeated in India now though for different reasons.

      Infosys has to stop hiring one day. There is a limit for everything! I expected this to happen in latest by 2009/2010 because Infosys (all IT companies) export profit is not taxed at all and they will enjoy this privilege only until 2009 after which government will impose Income tax on export earnings like other export oriented companies . This will curtail their surplus funds and they will learn to be frugal. The way they throw their money on staff without corresponding efficiency(I have seen the work output of some of their staff posted abroad) just because the company gets easy money - you will know this will not last long.

      If you had said about CITI Bank collapse or GM bankruptcy in 2007 I would have said neither NO or Yes because these are based on how they manage, leverage and control of which I had no information. I expected US housing market to crash anytime because this is not something big to predict. This was going to be the repeat of what happend in South Esat asia when real estate growth crossed the limit of catering to consumption. There was no monitoring by US Government. They should have at least made Fixed Interest rate compulsory on long term loans which would have minimised the damage.

      Who told you RBI cannot sell rupees??? I believe you read economic times regularly where you could have seen reports of RBI mopping up dollars to keep the rupee weak when it was breaching 40 levels to make our export competitive. I do not blame you for not being knowledgable on all matters. Without taking it offensive, you should take time to learn how forex market works before making such comments. (I was a banker for over 15 years).

      Who said crude oil demand is related to US$ - Rupee rate?

      All your theories do not work. First of all these are theories. Poor Y.V Reddy kept on increasing interest rate to curtail inflation but failed to achieve the result. Then inflation came down for different resons. Secondly, now loose money policy is now followed by all in the world.


      Dollar is subject to specualtion like other commodities. You can't really predict much except watching people backing dollar after more than 4 years. Have you heard of Soros? So better we do not predict on US$

      When do you expect gold going to US$3000/Oz?

      Comment

      • #43

        #43

        Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

        Wiseman,

        I couldn't see my long post in response. So I post again but I will be brief.

        Stcok market crash and rupee depreciating was no wonder and I had been expecting and telling since last year that when FIIS pull out both will happen. FIs are suppossed to pull out after taking the prices very high.

        About banks falling, this may be unknown in India but not in Japan and the west.

        Infosys is not invincible. They have to stop recruiting anyway. Already they are fat and work out of their employees does not correspond to their compensation (as I could see from the output of their employees posted abroad). Their export profit is going to be taxable from 2009/2010. Anyway I was expecting this during that time but the global slowdown expedited the process.

        Your statement that only dollar can be bought or sold is incorrect. RBI had been mopping up dollars by selling rupees when Re was breaching 40 and touching 39. Hope you didn't read economic time that time. I am an ex-banker and I tell you that RBI can sell both Rupee and USdollar in the forex market.

        All these stegflation, loose money are theories in perfect economic situation. Otherwise they remain theories. There are other forces acting. Poor Y.V.Reddy kept on increasing interest rate to curtail inflation but in vain. But now inflation is going down for other reasons not because of his interest rate hike killing growth. Dollar is backed by some speculative forces ( I believe, you know Soros) and is not likely to go down.

        If you want to belive Gold will go to US$3000/Oz it is upto you but the hypothesis is backed by sound logic. After the global uncertainties are over expect it to come down slowly. It is another commodity but with a special "Safe haven" status. After that purpose is served it will be on the sidelines.

        Comment

        • #44

          #44

          Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

          Originally posted by wiseman View Post

          Infosys has stopped hiring

          cheers
          Infosys has not stopped hiring. They are sticking to their target of 25,000 this year. May not increase beyond this number.

          ks2071746

          Comment

          • #45

            #45

            Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

            down trend in RE

            Originally posted by maeswaran View Post
            I am getting mails from the flat promotors intimating the price reduction from Rs 3200-3300 per sqft to Rs 2800 per sqft. About 15% reduction.

            That too now repeated calls & e mails, scope for further negotiation
            Dear maeswaran, for the benefit of other members looking for buying a flat, why don't you tell the names of the builders and the area where the flats are under construction?

            ks2071746

            Comment

            • #46

              #46

              Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

              Originally posted by maeswaran View Post
              I am getting mails from the flat promotors intimating the price reduction from Rs 3200-3300 per sqft to Rs 2800 per sqft. About 15% reduction.

              That too now repeated calls & e mails, scope for further negotiation
              Dear Maeswaran, For the benefit of other members looking to book a flat, you should indicate the names of the builders and the area of contruction pl.
              ks2071746

              Comment

              • #47

                #47

                Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                Originally posted by ks2071746 View Post
                Dear Maeswaran, For the benefit of other members looking to book a flat, you should indicate the names of the builders and the area of contruction pl.
                ks2071746
                Promotors located in pallikaranai area

                Comment

                • #48

                  #48

                  Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                  Originally posted by ks2071746 View Post
                  Infosys has not stopped hiring. They are sticking to their target of 25,000 this year. May not increase beyond this number.

                  ks2071746
                  It is just a make over. I am into one of the Big Indian IT Company. I know how they have cut down the cost in past 6 months. Almost every thing Closed. Ask your nearby person if you wanna confirm.
                  Either land or AIR and FOOD. Choice is yours.

                  Comment

                  • #49

                    #49

                    Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                    Has the ball started rolling?

                    Originally posted by arin_12 View Post
                    It is just a make over. I am into one of the Big Indian IT Company. I know how they have cut down the cost in past 6 months. Almost every thing Closed. Ask your nearby person if you wanna confirm.

                    Dear Vens,

                    If you are an ex-banker, what you say about forex goes and thats that ! I'm just a software guy trying to make sense of the economic climate and how it will affect us all!

                    ks207... bear with us. While what we say sometimes does not have to do with RE, it will eventually have the greatest impact on everybody's RE assets and therefore people holding RE - especially at high prices - must watch closely and take defensive action; or repent later.

                    My hypothesis was that we in India are on the brink of massive problems and the tipping point will be accelerated job losses. To put a figure to that, I guesstimated it to be around 300k to 500k (worst case) in the IT business and even more than that (was not able to guess the figures) in the BPO/ITES business.

                    Well, I did some more digging and here are some of the figures I could lay my hands on. I think in India, the bodies/associations that are supposed to track the industries are either deliberately keeping data fuzzy/unknown so that no external person really gets a handle on things, OR they are extremely incompetent - take your pick . How do you analyse data about the industry you represent without credible data - and therefore what is your own credibility?

                    The IT business is supposed to be having around 2.2 million employed. And the BPO/ITES business around 1.1 million (as per NASSCOM report of some vintage). Someone please give more recent data!

                    Here's a quote from EcoTimes of yesterday:

                    The Business Process Industry Association of India (BPIAI) President Samir Chopra has been quoted in the Economic Times as saying that the economic slowdown in the US and other developed countries could lead largescale job losses in India.

                    Employees working for the BPO industry may find it worthwhile to fasten their purse strings tighter as there could be as many as 2.5 lakh jobs lost in the first quarter of 2009 if an apex industry association is to be believed.

                    Also ...

                    However, Chopra also sees a silver lining in the clouds where he believes that the recession would compel more companies in the US and Europe to look at outsourcing as a way to cut costs and improve efficiencies.

                    The article in the Economic Times also quotes Praveen Sengar, Head of Software, Services Industry vertical at IDC ...
                    **************

                    Me: However dark the cloud, we must always paint the silver lining to hold our own jobs and the messenger is not shot, right? Even if the silver is still not really there yet?

                    Well, the cat is out of the bag and this implies a nearly 23% decline in employment!!! What will it do to growth numbers? What they are not telling you is that growth in 2009-10 will go from 20% UP to maybe 25% DOWN?! That huge 45% swing would be devastating! How many people would do the math and come to that conclusion? And what do you think will be the ripple effect it will have on the economy (since for every person employed directly, there are around 3 people indirectly employed and IT/ITES contributes to 35% of overall exports!!!). IF this is true (and we will know in next 3 months) this will have a devastating blow to the economy in 2009-10. So, do you think this recession will bounce back in 2010 itself? After being given a body-blow in 2010? Its like saying the man has had a bad accident today and we expect him to be up and running tomorrow! I expect the numbers to go up as the recession/depression progresses in the US and I presume the bottom should take at least 1-2 years after the worst hit? This problem is not ours and not created here. This is a US problem and we will have to wait till they come out of it, no other choice!!!

                    Well, this data is surprising to me as well. IF this comes true (at least some of it will since IDC would not have put a whimsical report without sufficiently scary data to support it), then we have only a max of 3 months to take action - what ever that may be!!!

                    We will still await similar news from the IT business which could be larger, given that the base is larger - but bigger companies' contracts are more long-term and thus the impact may be a little less severe; though not a whole lot less. We don't know yet. Keep fingers crossed.

                    So, whats the point?

                    The point is this. The Industry has, like everyone else, has been in deep denial till it is nearly too late!!!

                    The primary defense by the industry bodies about why jobs will not be lost was that, with recession in the West, companies will only look to even more outsourcing. This is true.

                    But they did not see the bigger issue. That while we may get a bigger slice of the pie, the overall size of the pie would seriously decline and thus the absolute numbers here in India would also decline seriously.

                    Over 80% of our BPO jobs come from only the Fortune 500 companies. Did you see job losses in the US in November? Half a Million people lost jobs in one month alone!!! What we are missing here is that these jobs went because the work supporting these jobs DISAPPEARED! Thus work does not exist for it to be shipped to India or elsewhere. It simply disappeared!

                    This is called contraction. From a family sized pizza (of 12") it is slowly becoming a personal sized pizza (6").

                    Finally: This job loss will also shrink the size of the pie in India (like everywhere else). Resulting in job losses, salary cuts, etc, etc. Please get real about your large sized debts before the wave actually hits (now as soon as next quarter, they say!).

                    Will RE prices decline by 40%? I definitely think so now!

                    Sorry for sounding so pessimistic, but I believe I'm being realistic. Now the Industry people are saying the same thing in fast-forward mode, so it must be getting serious.

                    cheers (whatever that means in this context)

                    Comment

                    • #50

                      #50

                      Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                      Fuel price cut, Interest rate cut and Fiscal stimulus.

                      I guess those in the PMO and RIB has been working this weekend. Interest rate cuts, fiscal boost and fuel price cut. This is the mother of all changes I have seen in the recent past.

                      First the fuel price cut did come as a surprise. I expected Congress to delay the fuel price cuts by few more months and announce it, say, a couple of months before election. But now that they have announced, it could be that we may have early election. Also, this will bring down the inflation drastically. I will come down even faster than it went up.

                      RBI for its part to spur growth with its monetary policy, has cut the interest rates by 100 basis points, home loans are about to get cheaper. The cost of funds for the banks has not changed (repo rate), so no wonder the banks are unhappy. I get confused when I read economic times, or that they receive confusing signals may be. For e.g., Banks say to RBI that the home loan growth is still robust and they turn around to builders and say there is no demand for home loans ! The cat will be out of the bag soon, when we get this quarters results from ICICI,SBI DLF and Unitech.

                      By and large, we know these measures are coming one way or another. With reduced inflation and interest rates, whether or not people will take to home loans is something we dont know yet. These measures has not worked in the US and UK. I know it is widely expected that RE prices will correct in India. I want to see the data. So, wait and watch.

                      300,000 Crore stimulus package ! We are not rich, remember ? We will have to raise a lot of debts. Congress is flushing rupee down the toilet. Expect rupee to depreciate further. Most of this money is going to end up in the pockets of rich in India. When the money is scarce, competition will be high. Corruption will rear its ugly head.

                      Just like how wiseman pointed out, not just with NASSCOM (I call them NASTY CON !), it is difficult to get hold of correct data out of India. We are left to infer from the circumstances. So, these fiscal and monetary policy changes are in essence underlines the fact that, we may not be immune from financial crisis.

                      Thanks,
                      Salim.

                      Comment

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