Hi

In chennai the prices of plots or even a flat for that matter is going beyond the reach of a common man. Is there any chance for the prices to correct in near future?

With a salary of 15k, it is beyond the capacity of common man to buy a house or flat
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  • Chennai Realestate gurus - help needed

    It has been quite a long and hot discussion going on for a while.
    Thanks people for keeping the thread informative and interesting.

    Well, I am really new here, and I am in to get some suggestions/ideas about my 'dream home' plans. To brief about me and my earning power, I am 25, living in Chennai with my parents, working for an IT major and, earning around 50-55K rupees pm.

    I want/wishfully think :) to buy a property in Chennai, not as an R2I but for my own residential usage. After seeing, analyzing the property rates, cost of living, proximity to places, I have decided to stick to the southern part of Chennai, particularly Madipakkam (Northern part - Sadhasivam nagar, Ram nagar north etc). The reasons are - The locality is quite good, close proximity to Velachery MRTS and Vijayanagar bus depot, closer to OMR, rates are kind of affordable*.

    *Affordable - Here is my plan / definition
    - There are CMDA approved lands available for approximately 55L to 60L per ground whose guideline value stands upto 45L to 46L per ground.
    - I along with 3 friends of mine are planning to buy around 2700 sqft of land, register it sharing equally (SBI gives out 80% loan for the total land + construction)
    and the repayment would be approximately 22 to 25K pm for my salary
    - The plan is to build two 3BHKs in the first floor, and car parking + 2 2BHKs in the ground floor

    I am in the process of seeing lands now. I checked with a legal advisor of a builder about how this is workable and got some very high level inputs from him - the abstract is that this is doable legally. From the perspective of the banker, also this is doable, and I might get a loan for 80% of the total cost involved. I am yet to check with the architect/designer on this.

    I thought it would be nice to get some advice from experts, advaced RE investor people around - Kindly advice me on
    1. Is this plan totally workable? Are there any major, legal or other vital points that I have missed out?
    2. Is this the right period to do this? Since this is for my (same with the case of other friends involved) own usage, should I wait in to see the speculated downfall of the RE market?
    3. Market rate for a flat in those areas is 3800 to 4000 Rs per sq. ft.
    If I work out this way, I will have to spend 16L (64L land price + registration / 4) + 15L for construction (lets keep 1100 sqft for 1300 rs per sq ft) - total 31L Rupees for a 1100 sqft flat with 700 sqft of land in my name.
    By this way, I will end up saving approximately 10L rupees with a larger land share.
    4. Am I overlooking things anywhere?
    5. What could be the potential problems in doing so - at this stage, or in the future?
    5. Any suggestions / advice on how, what to do and what not do do is appreciated.

    *Cheers*
    Newbie
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  • All you youngsters. Listen & Act before its too late ...

    Originally Posted by rickyofsnow
    I am an NRI from UK with long and regular connection with India, UK and US.
    I have seen the rise and fall of US & UK real estate cycle twice.

    Those cycles have/had the same characteristic as what is happening in India (Except India is more aggressive)

    Both equity and real estate Cycle in UK, US &Australia is about a 7-8 year cycle( 4 years Up and 4 years down).
    India seems to have longer Cycle 10-12 year (4-5 years of drastic up and 10 of flat to down).


    As an economist and a property owner in India and abroad - all I can say is what is happening in India is extreme greed and speculation - This illogical and unsustainable.

    I love to see my property value go up but in a sustainable level and in tandem with macro economy.

    I have seen dealers/Traders entering in to POWER OF ATTORNEY DEALS and then trading it to third party for a huge profit.

    I have seen uneducated brokers/dealers earning up to one crore in 1 year by SWITCHING couple of properties like commodities.

    I haven’t seen any market in the world that is so un transparent.
    SPECULATION IS THE NAME OF THE GAME IN INDIAN REALESTATE MARKET.

    I was quoted 1C for a property in Chennai in Dec07 and again the same property (Unsold) in March 08 was quoted 1.3C and now in June the same property (Unsold) he is quoting 1.5C in June 08

    The vendor has not sold the property in the past 6-8 months how ever he did not fail to increase the asking price by about 30% every 3 Months

    As a owner of properties in India, I am saying it is not sustainable.
    Greed and speculation will end in pain and COMMONSENCE WILL PREVAIL.

    If not 1997 EastAsian economic crisis (Thailand,Malaysia,Indonesia etc) will be repeted in India with a devaluation of rupee followed by inflation linked economic meltdown which would take 10 years to get back on feet.

    DON’T FORGET WE LIVE IN A GLOBAL VILLAGE NOW, What happens In US, Middle east or Europe will have direct Impact on India.

    What goes around comes around.


    Like Ricky here, I've been around and have seen 3 major Stock bears and 2 major Real Estate bears in the last 23 years. And of course 3 major Stock Bulls as well as RE Bull markets.

    I constantly track the Global and US markets and actually advise a number of people on stocks - Real Estate always puzzles me ;) (to give you an idea, I have bought Satyam at Rs. 6 and truckloads of Infosys at 110 post IPO - figure out the ROI :D). On 25th Dec 2007 - the usual time for all people to take stock of their lives, make resolutions and spout on predictions - I did a piece on where the Sensex would go in 2008 and compared it to the dozen or so "analysts" who Dalal Street, EcoTimes, etc so conveniently put on their front page (photo and all). The lowest prediction for Sensex was 23000 while one guy went over the top and predicted 30000! Knowing the old market rule that, when all players are focused in a single direction, its time for the market to move the other way, I said "Sell your entire portfolio and expect at least 15000 and maybe 12000 in 2008". And a sub-10000 maybe even touching 8000-9000 in 2009. I take NO CREDIT for this insight. Its the tracking and picking the right analysts that did the trick. Long before names like Nouriel Roubini, John Mauldin, Bob Prechter, Schiller, etc became well-known to us commoners, I was religiously listening to - and trying to understand - what they were saying.

    And here it is. This Bear is no garden variety one. With last weeks debacle we should expect some serious and sustained hits to economies around the world. Stock Market is a highly accurate 6-9 month leading indicator of whats to come in the real world. The WORST PERFORMER in stocks has been the Real Estate sector. The BEST companies are down over 70%. This, to me, is a serious and reliable indication of the bloodbath that is going to hit the RE sector in India shortly. Even in the best of times, profit margins in RE has been relatively lower. Growth seems great only because of sharp (one-time) topline increase - and this is not easily seen by the layman who gets carried away by absolute figures and does not do the ratios. And to add to it, this is a highly leveraged industry. HIGHLY DANGEROUS!!! The trigger will be sharp increase in JOB LOSSES in the segment that supports high RE prices most - export-oriented IT.

    Now that the second leg of the bear market has started with a much more severe hit on US Financials, this has become Global in every sense. Check the data. Leaving out the US - Australia, UK, Spain, Ireland, Germany, Italy are all in or on the brink of recession. No less than the BoE Governor has stated that the coming UK recession is going to be long and severe. To make it worse, the commodity giants Russia and Canada are now seeing severe downturns as commodities crash. Russian markets are down over 50% and hit lower circuits (17% down on EACH of last 2 days). Shanghai index rose from 998 to 6125 in 2 years and has declined to 2125 (80% of gain lost) in less than 1 year. Chinese manufacturing is in negative territory last 2 months running. Do you still think we are insulated? Do you still believe the 7% or 8% nonsense being fed to you? Our FinMin is great at throwing a Red Herring. While India spends their time nit-picking between 7.4% or 7.6%, no one seems to be looking at, what if its -2%?! Don't believe it can happen. Go back a few years and check the data.

    Sure, with global recession / depression outsourcing may increase. But it will be far outpaced by sheer volume drops (fancy a figure like 30% volume drop compared to single digit increase in outsourcing? And add much more competitive rates to add spice to the picture). Our IT managements were clueless in 2001. They remain clueless now.

    NO ONE IS LISTENING even at this late hour. The party still seems to be continuing amongst the youngsters who still think this is a mild recession which will pass any day now. Fear is now slowly becoming all-pervasive in the younger IT crowd now. Soon, as the downtrend deepens it will turn to panic. And a sudden rush for the exits by everyone at once.

    I still stand by the figures given in earlier posts. RE in prime IT destinations (which have risen most) will give back anywhere from 50% to 80% of their value. Yes, you got that right. You will see a flat bought in 2002 for 30 lakhs, which went to 1.3 crore in 2007 come back to anywhere from 45 - 65 lakhs by 2010. But why buy an 8-year old flat for that price? Builders will be begging you to buy a NEW one for the same price!!! RE will revert back to the mean of 12%-14% longterm CAGR for the best of properties in prime cities.

    We are seeing classic Real Estate Bear behavior. As Ricky has said, Indian RE bear is a 10-12 year cycle. Price peak reached in 1995 only came back in 2005 (and that too because of the global easy-credit binge/mania). It should have taken longer.

    As per EcoTimes, prices have only declined from 10% to 25% now. Rentals are crashing. When holding highly-leveraged property becomes unsustainable due to a combination of job loss, income loss, high interest, tightening credit norms and price declines due to oversupply, there will be a Tsunami of supply. And very few buyers. Where do you think prices will head? Up?!!!

    Selling even now will allow you to come back 3-4 years later with much more equity, lower loans and a much improved state of mind! :D

    cheers,

    wiseman
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  • Natarajg007 looks to be a very frank guy and his comments are really worth reading. I partially agree with his plain views. I feel, the Chennai real estate prices may not come down as it has been in the case of say, Bangalore due to a variety of reasons. At the best it may stabilise at current levels or the builders may offer some free items like upgraded flooring, electrical fittings etc. The prices are controlled by the black moneyed politicians and they will not budge. So, let the prospective buyers not wait for long and decide on their flats anytime now as they like.

    People talk about Madipakkam as a fast appreciating area. I visited the place about a month back. All vacant plots in the Ramnagar North area are with wateer stagnation, due to some rain about 10 days prior to my visit. I even saw a plot water stagnated and Lotus plants there with flowers. Does it not mean that the plot should be with water for atleast an year or so to make the lotus plant to be there flowering. Any vacant plot you see with water stagnation only. The roads are very bad and one will find it difficult to even a 4 wheeler drive. Leave alone how the ladies can come alone in thiese areas in the night. Still the people rush to this area. Thanks.
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  • Chennai real estate prices may not fall

    Natrajg007 looks to be a very frank and plain speaking guy. I also agree with his comments. Chennai real estate people are pure business fellows and will not budge an inch to reduce the prices. Rather they will hold on for months together to get the price what they want. Most of the properties are owned by Politicians/black moneyed personsof all political parties, small and big and they do not feel any pressure to sell at reduced prices. They will hold on and on to their prices and will only look for any possibility to increase and not reduce.

    ks2071746
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  • Recession is certain. Its talk of Depression now!!!

    I have been essentially an advisor in the Stock Markets and have adviced ALL my clients to exit ALL POSITIONS in the markets above 20000. In fact on December 25 last year, while all the Investment Gurus had predicted anywhere from 23000 to 30000 Sensex, I had predicted between 12000 to 15000 in 2008 and below 10000 in 2009. My clients include NRIs and my advice included what to do in the USA - especially regarding Real Estate out there, essentially DON'T BUY till 2012 or SELL NOW.

    It appears that I was very conservative. Last week things quickly got out of hand Globally and Sensex also touched 10500 approx in sympathy. More importantly the developed countries as well as China and BRIC countries are in the midst of their worst crisis since the last 65 years. This time the Stock Market bottom will be WAY below 2002 bottom for the US market. We may see anywhere from 6500 - 8500 levels (probably closer to the lower figure).

    The IIP as well as Manufacturing, Mining and Capital Goods growth figures for August says that we are effectively on the verge of a recession. But August was a good month. The real bad period started with September. I expect Sep figures to even be negative signalling recession.

    The worst hit will be IT along with Real Estate. The Reliance Group too will be hit particularly hard At 1525 RIL is already well below 50% of its peak price above 3200 already.

    There is a BIG crisis in the RE market right now. Most RE companies have over-leveraged and are now facing the multiple threat of sharply falling sales (due to lower appetite for banks to lend as well as buyers to buy) and a huge, increasing inventory at VERY HIGH prices. This debt load which helped them grow faster than they should have is now going to be the death of many of them as it will now drag and choke them in this global debt contraction.

    This is reflected in the stock prices of RE companies with Sobha lading the way at Rs.115 (which is 91% lower than the peak at 1248/- in early 2007). Also near the 11-12% levels are Omaxe, Parsvnath, etc. Even the market leader, DLF has lost a whopping 74% of its peak price.

    Stock Markets are VERY RELIABLE INDICATORS of what is coming in the underlying industry in next 6-9 months. So is the case with RE.

    Now the general population is FINALLY GETTING IT that this is going to be a very looong, very painful and very deep decline till all the bullishness and risky behavior of people is totally SQUEEZED out. This may take till 2009 end or 2010 at least.

    The next 2-3 weeks will see the titanic battle between the Govts of the world and the recessionary forces. If it ends badly, the world will slip into a serious depression and my forecasts will be for even lower Sensex and thereby RE prices!!!

    Anybody who thinks that companies will NOT sell below cost are living in fantasy land! That is normal behavior when there is demand, loans are being given liberally and people are taking risks. Today the cost of debt to RE companies is touching 36% pa - YES 36%!!! When RE companies are saddled with HUGE inventories, very large DEBT at very high INTEREST and no hope of clearing inventory there is only one way out - sell in distress at any cost OR die.

    As per my reading, Sobha is looking to raise Rs. 450 crores. Banks will not lend and foreign debt is out. So they got a rights issue authorised when their share price was above 200. Today its 115. At what price will they raise money? And how much equity will they need to dilute? Whatever the rights price, the market will beat down the price immediately to around that - even Rs.20!!! (check out Tatas recent Rights). Effectively Sobha is TRAPPED! They cannot raise that kind of money in this market. So they have only one choice. Sell in distress. Watch and see. And buy at distress if you have cash - by distress I mean maybe 60% discount so a 40 lakh flat should sell for 16 lakhs :). Don't believe me? Watch!

    Generally, Property prices will continue to drop till they reach 50% to 80% LOWER than their peak in areas where they have gone highest, like Bangalore, Gurgaon, Hyderabad, Pune AS WELL AS Chennai (especially new areas with poor infrastructure). Like Sobha, others will follow suit and also come in with distress sales. One sign of this is exchange offers (which is nothing but canibalization of competitors - one company is even advertising, "Exchange your flat in city and get a Villa in return"). Things are getting a little desparate already. And the Global Crisis has only just started!!!

    If you have not already bought, wait for at least 1 - 2 years. If you have bought you could even sell now and see much lower prices when you can buy back.

    I will track this again on monthly basis to prove to you that this is happening and will continue to happen till a final bottom is reached much later and much lower.

    cheers
    CommentQuote
  • One may be frank. And yet not know much about markets!

    ks, Natraj and others,

    Still think prices will not decline much in Real Estate? After what has happened in the Stock Markets n the last 2 weeks? THINK AGAIN!!!

    KS: Being frank has nothing to do with knowledge of markets. And prices in the bubbly areas of Chennai like Vadapalani and what-have-you is crashing much faster than the "old" areas like Mylapore which Natraj has so much disdain for. Reason is simple. Older areas have grown slowly and have much better infrastructure and connectivity. So they will also decline more slowly and much less. In these situations, Old really is Gold! :)

    Young people - especially the ones who think they have made it since they have some IT job and easy money - get easily arrogant without justification. This only creates DOUBLE JEOPARDY for them since it keeps them ignorant as well s they do not learn from life.

    This Bear Market will be the "Mother of all Bears" as you will see over next 2 - 3 years. I continue to maintain that property in bubbly areas (especially near IT zones) will see a 50% to 80% fall from peak 2007 prices.

    Why? Last week, even Cushman and Weikfield has brought out the 50% level. And thats saying something for an Industry advisory leader person to admit as much.

    Anyone wants to take a bet with me on this one? :D

    DO NOT BUY NOW. DO NOT TAKE ON DEBT NOW. Interest rates are touching 36% for commercial loans. RE companies are getting into a VERY TIGHT DISTRESS situation. They are TRAPPED and cannot get out. The guillotine will fall sooner than later on these companies - especially the highly leveraged ones.

    Expect an AVALANCHE of selling pressure at distress prices MUCH LOWER than building cost very soon. Companies like Sobha, Omaxe, Parsvnath, etc are caught in the leverage-trap and cannot SURVIVE for very long in any case.

    I will be reminding you about my prediction every month till my targets are reached.

    No offense.

    cheers


    Originally Posted by ks2071746
    Natarajg007 looks to be a very frank guy and his comments are really worth reading. I partially agree with his plain views. I feel, the Chennai real estate prices may not come down as it has been in the case of say, Bangalore due to a variety of reasons. At the best it may stabilise at current levels or the builders may offer some free items like upgraded flooring, electrical fittings etc. The prices are controlled by the black moneyed politicians and they will not budge. So, let the prospective buyers not wait for long and decide on their flats anytime now as they like.

    People talk about Madipakkam as a fast appreciating area. I visited the place about a month back. All vacant plots in the Ramnagar North area are with wateer stagnation, due to some rain about 10 days prior to my visit. I even saw a plot water stagnated and Lotus plants there with flowers. Does it not mean that the plot should be with water for atleast an year or so to make the lotus plant to be there flowering. Any vacant plot you see with water stagnation only. The roads are very bad and one will find it difficult to even a 4 wheeler drive. Leave alone how the ladies can come alone in thiese areas in the night. Still the people rush to this area. Thanks.
    CommentQuote
  • Originally Posted by wiseman
    ks, Natraj and others,


    Expect an AVALANCHE of selling pressure at distress prices MUCH LOWER than building cost very soon. Companies like Sobha, Omaxe, Parsvnath, etc are caught in the leverage-trap and cannot SURVIVE for very long in any case.

    I will be reminding you about my prediction every month till my targets are reached.

    No offense.

    cheers



    Excellent post wiseman. You are really a wiseman. I would like to see your post more often in this forum.

    I don't understand how people are still thinking that RE in India will go upwards and there wont be any downfall? How silly they are? They are no different than our FM Mr. P. Chidambaram.

    He still has not acknowledge that India is a global economy and we are not de-coupled from that.


    Note: Just wait for those FII's to pullout their money from the Indian market. Back in 2004, FII net inflow was less than 4B and it topped to 56B in 2007. So far they have withdrawn close to 9-10Billion out of the market.

    When we have recession in Europe and other western coutries especially in USA, they these hedge funds will vanish from India. Thats when the real down fall will start.
    CommentQuote
  • Originally Posted by wiseman
    ks, Natraj and others,


    cheers



    Wiseman, i have a question for you.

    What do you think of Rupee value in this distress condition? What will happen to Rupee in the near term, 1 or 2 years from now?

    I am thinking of sending my dollars to India and put it in fixed deposit. Today the rate is 48/$. I was telling my friend six months ago that Rupee will depreciate to 50/$ within 2 years(by the end of 2009). But it has already reached 49 within the 6 months of my prediction.

    I can not predict any more. What do you think and please give me your insight.

    Thanks
    CommentQuote
  • My knowledge of Currency markets poor! :)

    Strongsville,

    Thanks for your compliments. And also that of others who may or may not have said so.

    I try my best to bring all my experience of bear markets to ensure that youngsters do not get BURNT by them. I have seen people in the early 1990s earning a salary of 10k pm (was a big sum in those days) get so badly burnt that they had debts of 18-20 lakhs. Used to think, "life is effectively OVER for these guys! How will they EVER payback such huge sums!!!" And these were people with 10+ years experience and decent jobs.

    Today youngsters with hardly any experience, qualifications or skills are dabbling in Crores. It was VERY DISTRESSING to see many youngsters be so overconfident and take such huge risks. Imagine, so many youngsters casually talking figures in Crores. Easy credit got so out of hand and MFs and others have been making and giving out such high returns for 4-5 years that people thought that it was their own magic touch that provided this kind of magical returns, not realising it was some banker/gambler somewhere in the world who was fooling them! Makes me very fearful.

    Anyways, don't know whether it is correct discussing Currency Markets on a RE Forum. But will keep this short and hope the monitors will not mind.

    I hardly understand Currency markets. In fact, going by the HUGE losses companies are making dabbling in fancy Currency Derivatives, it appears neither the banks that sell them NOR the customers themselves have much of an idea either. By admitting my ignorance I at least remain out of the market and avoid big losses ;). I went and sold a lot of $ in the 39-41 range (needed it anyway) and many people were hedging fearing further fall. But see what it has done. Gained 20% and really CLOBBERED the hedgers going the other way.

    Reason is simple in hindsight (which is always 20/20! :)). With FIIs pulling out 12 Billion (50000 Crores) the increased demand for $$$ along with reduced supplies raised the $$$. How simple it looks AFTER you have burnt fingers :D.

    Information in the markets is that another 50000 Crores of $$$ will disappear before we see and end to this exodus. Knowing human behavior, it is likely to EXCEED this amount. Question arises, therefore will Re go down to 55 - 60? Well, it might given same level of imports and requirement for $. But if consumption of imported stuff (oil, etc) falls due to recesson, the decline may be less. But alternately, our exports too may fall - especially IT - and this may cancel out the advantage of reduced $ requirement by reducing $ supply.

    As I said, its anybody's guess and very complex.

    All I can say is that the highest long-term return one can get is from the Stock market. Next highest is Land/ RE Property. Third is Gold (surprised?). Then come FDs etc. I have done research over 38 year period starting 1970 and this holds true. In the US its true over 100 year period.

    Whaever you do with $$$ the most you could gain/lose will be 20-25%. If, on the other hand, you invest wisely at market bottoms in fundamentally strong stocks, you could gain 1000% over next 5 - 7 years. India will BOOM once this decline gets completed.

    Look at the big picture. Does it really matter in this context, what you do with your $$$? :D

    cheers,

    Ram

    Originally Posted by strongsville
    Wiseman, i have a question for you.

    What do you think of Rupee value in this distress condition? What will happen to Rupee in the near term, 1 or 2 years from now?

    I am thinking of sending my dollars to India and put it in fixed deposit. Today the rate is 48/$. I was telling my friend six months ago that Rupee will depreciate to 50/$ within 2 years(by the end of 2009). But it has already reached 49 within the 6 months of my prediction.

    I can not predict any more. What do you think and please give me your insight.

    Thanks
    CommentQuote
  • Wiseman, your posts are mind blowing!
    Though I have my own reasons to think that the Indian RE bear cycle can't be as long as 8-10 yrs, appreciate your insights. Kudos!
    CommentQuote
  • Wiseman,

    I have read most of your posts. Excellent insights on the bubble theories.

    In June 2007 (returned from U.S. after spending 4 years), I retreated from buying an apartment for 45 lakhs near medavakkam thinking I am not getting value for money. I never regret that decision.

    In 2003 an apartment (800 sqft )in Ashok nagar( where I live now) costed atmost 14 lakhs and today it is ridiculously quoted at 50 Lakhs.

    Would love to hear your insights on price reduction in areas like Ashok Nagar.

    Thanks
    Ram
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  • real estate prices in chennai

    even in india only chennai re prices areplaying havoc and are mind boggling .anywhere and everywhere people say ground is 2 c or 3 c . far off placaes 75 lacs. where is the money? all humbug. brokers are playing dirty tricks no trtansactiion taking places for middle class> the prices will fall in December 2998 by 39%. all pl wait till that time to buy. For second hand flats u will get at 40% of the price . lots of second hand flats will hit the market in Jan 2009. U will get a 3 bed room apartment in Vadapalani for a cool 27 lakhs in Jan 2009. Take it from me.
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  • Hmm this gentleman tells that he predicted stock market at 20K (I think he meant Sensex!). Well I had told all and sundry to exit at 5900 on Nifty. Now it is at 3000s. That does not mean realestate in India is going to collapse. That is why keeping a name like Wiseman does not make people wise! Forget the marsupials, but in India we have blatant liars on boards, who can write anything. This is a buyer ONLY board in general and folks like to hammer down the price of realestate. REason is simple. They sold stocks and want to enter realestate.

    Unfortunately the truth is Realestate is not gonna get cheap now and in reality its peak and stock market peak do not coincide ever in India. So the peak for realestate will be in a year or so from now. Even after that the correction might be 50% at best, but then I am not talking about builders who sell their silly buildings for a fortune. I am talking of essentially land.

    Let these wise guys realise. Land appreciates, Building depriciates. As for that brilliant Koramangala joker. Well buddy when u bought in Kormangala, I bought in Tiruvanmiyur in Madras. If your salary is a big stuff today, it also means that Koramangala price went up because of the same reason.

    What is the truth is my salary between 87 and 03 went up 100 times or at a consistent growth rate of 30% approx. So land going up 100 times is not really unabashed. Only that folks on this board are thinking if their salary has gone up it is their effort while realestate should stand still. That is not gonna happen.

    So if someone buys in Whitefield or URapakkam today, he is actually the freshie type. After 30 years these places will become special and prices will go up say X times which will match their salary rises. Now in India inflation and USD-INR ratios matter. So if USD is gonna be around current levels then salaries will also not rise 100 times like it did for me, but maybe 10 times in 30 years or even lesser. So realestate will only do that much.

    NOw will realestate fall. In India it might not. Even my 50% prediction above might be more in Dollar terms. In India people buy realestate using White Black and Coloured money. People sell realestate ONLY when they are bankrupt, unless they can trade like me.

    In effect if you talking of India vs US, Singapore etc, you are comparing Whales and Lions, not even Whales and DOlphins. Ofcourse on this board filled with NRIs who neither care for India nor for their new country, who have probably studied in some college but will talk as if they got into an IIT they can predict anything. I dont care.

    All I can say for sure is. IF YOU HAVE MONEY TODAY BUY LAND IN MDS, BLR etc. IT will be more difficult for you to buy them tommorow than today.
    Fullstop.
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  • By "Cycle" I mean peak-2-peak OR trough-2-trough

    Originally Posted by Raghavan.aiyangar
    Wiseman, your posts are mind blowing!
    Though I have my own reasons to think that the Indian RE bear cycle can't be as long as 8-10 yrs, appreciate your insights. Kudos!


    Thanks Raghav. Not really deserved, I'm sure :)!

    By the definition given in the title peak RE prices in 1995 were reached once again only in Jan 2005. And this was shortened because of the trmendous bubble blown in the RE sector in India as well. Without the bubble this peak may have taken longer. So, 8-10 years is reasonable.

    In the coming crash and the impoverishment of the West the next peak may take longer. 2 reasons for this which I will not explain now :D

    cheers
    CommentQuote
  • I'm very excited! Check out EcoTimes headlines 20 Oct

    Hello everyone,

    Finally the cat is out of the bag and Economic Times of today (20 oct 08) has come out with figures I was finding hard to find, to justify my arguments. Builders have borrowed as much as 70000 crores on a small equity base.

    My warning to you is doubled now. BEWARE!!!

    The RE sector in India is in DOUBLE JEOPARDY which I did not think so till a short while back.

    In the old days, RE prices remained steady, climbed slowly and almost NEVER went down (those were the days!!!). Reasons?

    1. Land (and other resources) were acquired at reasonable levels
    2. Builders built largely to cater to genuine, residential purposes
    3. Buyers bought largely to cater to genuine, residential purposes

    When I say "genuine purpose" I meant, people tended to accumulate EQUITY as much as possible first before going in. So both builders as well as buyers borrowed AS LITTLE AS POSSIBLE (to avoid high interest payout to banks as that would have negated the slow price rise over time).


    TODAY, GREED is everywhere. EXCESS GREED!!!

    Landowner wants the moon for his/her farmland which is worthless infertile scrubland anyway (where else are new developments being built today?) because he sees stupid buyers backed by greedy builders and banks calling on him to sell at once-in-a-lifetime price and become rich. Therefore he JACKS UP the price so the whole thing starts by being unsustainable from word go.

    Builder takes on TOO MANY PROJECTS stretching equity thin and therefore borrowing HUGE sums of money (and as they borrow at low rates they seem to be able to sustain the payout when things are going fine and the sky is blue ). To make matters worse, they start quoting ridicuous rates to buyers in cahoots with bankers who offer low interest rates to make things look better to buyer.

    Realtor (those pesky fellows who are supposed to act in the interest of the buyers but actually extort more from the buyers themselves - there are some good ones no doubt) further add to the cost through fees for some vague "service" they provide which is nothing but keeping information away from buyers and using it (information broking) to squeeze. If we had a reliable Craigslist kind of mechanism (basically a sound "Price Discovery" mechanism like Stock Market) why would we need the Realtor?

    Finally the Bank which offers loans to buyers (after lending to builder for the same property!) to "afford" homes that is only possible because buyer is temporarily earning large sums of money they really don't have a clue why?!
    In bullish times people are paid levels of salaries they generally do not justify. In bearish times they realise their true worth!!!

    Youngsters - NOT KNOWING THIS TRUTH - assume that this is what they are truly worth and project this into infinity going forward. I always asked youngsters this question. "You are taking a very large debt on your head for 20 years with a high EMI. How are you so confident (with current few years experience), that in the next 20 years you will keep on earning ever-increasing sums of money to such an extent that not only will you overcome the increasing necessities of life like marriage, kids, etc but over and above this you will also keep paying off the mortgage?". Most youngsters are quite stunned by this question since they NEVER THOUGHT ABOUT THIS EVEN ONCE!!! This is why our fathers used to take SO LONG to buy/build their first house . Not because they were incapable or stupid!!!

    FINAL SCORE
    Here is the FINAL SCORE. Answer this question yourself:

    What will happen when you take very large tracts of land, put in small amounts of capital, borrow vast amounts of money, pay extremely unsustainable prices for land, cement, labor, whatever and build too many homes for people who seem to have great incomes and who themselves borrow vast sums of money to buy those very same houses from you at exobitant prices.

    These homes are loaded with DOUBLE DEBT. One for builder and one for buyer.

    Now when the ship (Titanic RE ) turns the other way and heads for the iceberg, see what happens.

    Banks Raise interest. Buyers lose salaries and jobs (and discover they were not such hotshots after all - now you know why Investment Banks were offering IIM graduate Crores; to become traders and GAMBLE with vast sums of OPM, Other People's Money, and take fat bonuses for creating a Mega Risky situation; not because they were the new Einsteins!). Homes do not sell much anymore. Banks start recalling loans or not roll them over.

    The Credit Slowdown RIPS huge holes in the financial structure of the Titanic Real Estate market. Slowly the pressure starts building up and water starts seeping in. Pressure leads to further weakness which leads to further pressure and so on - the vicious cycle. When the critical point is reached and enough holes are formed there is a RUSH FOR THE EXIT by everyone simultaneously followed by a great GASPING noise as prices start crashing seriously. This is what the EcoTimes says is coming near!!!

    cheers
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