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Are Chennai Property Prices Fall Going To Fall In Near Future?

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Are Chennai Property Prices Fall Going To Fall In Near Future?

Last updated: January 7 2010
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  • #51

    #51

    Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

    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

    Comment

    • #52

      #52

      Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

      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?

      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 View Post
      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.

      Comment

      • #53

        #53

        Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

        Originally posted by wiseman View Post
        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.
        Last edited October 16 2008, 03:27 AM.

        Comment

        • #54

          #54

          Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

          Originally posted by wiseman View Post
          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

          Comment

          • #55

            #55

            Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

            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 .

            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 $$$?

            cheers,

            Ram

            Originally posted by strongsville View Post
            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

            Comment

            • #56

              #56

              Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

              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!

              Comment

              • #57

                #57

                Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

                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

                Comment

                • #58

                  #58

                  Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

                  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.

                  Comment

                  • #59

                    #59

                    Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

                    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.

                    Comment

                    • #60

                      #60

                      Re : Are Chennai Property Prices Fall Going To Fall In Near Future?

                      By "Cycle" I mean peak-2-peak OR trough-2-trough

                      Originally posted by Raghavan.aiyangar View Post
                      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

                      cheers

                      Comment

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