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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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  • #61

    #61

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

    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

    Comment

    • #62

      #62

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

      Banks Act

      Banks waive off loans to this Big RE Developer. For what ? For cheating the customer !!! But at the same time if you miss 2-3 EMI due to the present economic scenario your sweet home will be a bankers property.
      What a shame on this Financial Institutes ... Basically they are taking money from you and giving to uncuth RE developer. And as you know most of RE developers/agents are "anghutha Chap" (Thumb Impression). But this idiots enjoy one of the most LUXARY life.
      "Think Again and Again Before You Give Your Money To This Builder"
      Either land or AIR and FOOD. Choice is yours.

      Comment

      • #63

        #63

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

        link for the ET

        Hi Wiseman,

        If you have the link for the report you are refering from the Economic Times, please post it here

        Comment

        • #64

          #64

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

          You seem to be really confused

          Originally posted by Natarajg007 View Post
          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.

          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.

          Dear Natraj,

          Your obsession with RE going upward is such that you are exhibiting several logical conflicts in your arguments.

          When I said I predicted a fall at 20000, I assumed everyone would know what I was talking about (it was NOT the price of Tomatoes!). And that mention was to indicate that predictions follow the irrational behavior of markets - stock as well as RE, or anything for that matter.

          You took that literally and figured out (did you do it all by yourself or did you take some help?) that since Stock Market did not have anything to do with RE, I was being disingenuous at best. You have NO idea how many ways you are wrong. Anyway, shooting off before thinking is a dangerous passtime.

          You say that you also predicted people exit at Nifty 5900. Why did you do that? If you really gave that call ( I think you cooked that one up), its probably because Stock assets had exceeded their fair value. As you have seen markets corrected 60% and you were proven right.

          By now we all know that RE prices had exceeded all connections to realism and were at purely speculative levels. Now we know that if ever you happened to buy flats at 1 crore in a remote location where even MARSUPIALS DREAD TO GO , that is NOT because you had the money. Its because some banker was stupid enough to give you 30 times your salary as loan without knowing whether you were worth it! Now, even RBI is telling Builders that interest rate reductions is not enough. Significant price cuts (and NOT freebies) is the only way for them to save themselves. Do you consider yourself wiser than the RBI Guv? Dream on!!! Maybe I'm not wise, but at least I'm cash-rich having sold RE at the 2007 heights (which I'm sure you are not probably being stuck with some property where Marsupials fear to tread!!! .

          Why don't you use the same wisdom of a 5900 sell call and similarly give a (rather belated) RE sell call? I think you really DID NOT give that Nifty call. You probably just cooked it up to show you too gave a correct call in retrospect . I can show some really reputed people who will vouch for my claim. Can you?


          Secondly, you are looking into the past and projecting into the future. Buying in remote areas is highly risky. Generally speaking, lower the price, more remote the area and this is BECAUSE risk is high (that price is low). You might wonder what kind of risk. The risk I'm talking of is that of development NOT proceeding in the direction you have anticipated. You are merrily advising youngsters to buy in remote areas with the surety of development proceeding in that direction. Well you are making the CARDINAL ERROR of driving looking into the Rear View mirror - and you know where that lands you .


          Thirdly, you are showing the crazy salary inflation as a justification for land prices going up. That is reversing the cause and effect. That is putting the cart BEFORE the horse. Next few years will show you dear chap, that the 100 times increase in you salary from 87 to 03 was PURE FICTION. That because of that India is rapidly pricing itself OUT of the export markets. And that that salary increase may itself correct by 50% on a long-term basis. Count on it.


          Fourthly, Natraj, you have the color-changing habit worthy of a chameleon - well if you introduced Marsupial, why not I introduce Chameleon?) . I never saw you EVER post that prices will decline even by a rupee. Now, I suddenly see you sliming in a 50% decline as YOUR prediction. Can you show me ANY post of yours where you talked of ANY decline (leave alone 50%). Is this the same as your 5900 Nifty call? Pure imagination AFTER THE FACT!!!


          LASTLY, I think you have either a deep stake in the RE business OR you have bought beyond your means and are stuck. And you are trying to talk up the RE market. Wish you luck, which you are going to need. As Parsvanath has just shown (and other RE companies are going to show in the next 2 Qtrs), their Stock Market behavior is going to be a very accurate indicator of their business performance - a disaster. When they come to market in distress, and when widespread job losses leads to another avalanche of distress sales (would we be seeing you selling at that time?), we will see who is the really wise ones!!!

          To repeat what you said (with a difference)
          All I can say for sure is. IF YOU HAVE LAND TODAY SELL PROPERTY IN MDS, BLR etc. IT will be MUCH more easy for you to buy them tommorow than today.

          And as far as I can see, the blatant liars (that you point to) are NOT those who, never having predicted a fall in RE prices OR a Nifty 5900 sell call before, suddenly turn around and slime it into their post AS THOUGH they have been claiming it all along (do you take other readers to be stupid or something? )

          And what do you have against IIT guys? After all they worked to get where they are!!!

          You must remember though that, any joker can be foul mouthed. But it takes wisdom and experience to be a real wise man!!!

          cheers

          Comment

          • #65

            #65

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

            Ouch!

            Originally posted by wiseman View Post
            Dear Natraj,

            Your obsession with RE going upward is such that you are exhibiting several logical conflicts in your arguments.
            ....

            LASTLY, I think you have either a deep stake in the RE business OR you have bought beyond your means and are stuck. And you are trying to talk up the RE market. Wish you luck, which you are going to need. As Parsvanath has just shown (and other RE companies are going to show in the next 2 Qtrs), their Stock Market behavior is going to be a very accurate indicator of their business performance - a disaster. When they come to market in distress, and when widespread job losses leads to another avalanche of distress sales (would we be seeing you selling at that time?), we will see who is the really wise ones!!!


            cheers
            I smell fear in realtors posting in these forums.

            Comment

            • #66

              #66

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

              One must always be humble! Or invite the wrath of the heavens

              Originally posted by metroplots
              Dear Mr.Wiseman, Your postings are simply mind-blowing and I can feel the amount of care and knowledge that goes into these articles which you write. They need considerable time and effort and discipline from your part to post these messages in this forum.

              We are a website here in chennai. We cater to the requirements of different Residential and Commercial clients, and what you say in your articles are helping us and our customers to make some good decisions when investing in RE, especially in Chennai.

              Keep up your good work and Congrats......!

              Folks,

              Thank you all!!! You have no idea how much pleasure it gives me to see that some one at least derives some benefit from my wild rants !

              Yes, I do spend a while (sometimes it takes 2 hours or more) to think, research, write, edit, spell/grammer check and tune the post to say exactly what I meant to say. But the aim is to make each one a work of art , so that when you revisit them again in future it still has timeless value (otherwise whats the use? )

              I personally follow my convictions through my actions. And this way I have always managed to keep the food on the table and a (non-leaky) roof over my family's head (and maybe put away some cash for the proverbial rainy day).

              When I see that others have used my posts to make good decisions, it humbles me that the good Lord has given me the ability to learn from my mistakes (I have made several of them as well) as well as talk about them in a way that people appreciate and find useful.

              I'm also very unhappy and apalled that sometimes I use my written language skills in taking off on people (shows poor judgement and culture). If anyone is hurt (Natraj, maybe?), my unconditional apology . And it will not be seen again!!!

              CAVEAT
              Nevertheless, I would request everyone to make the FINAL CALL about their investment decisions THEMSELVES and take full responsibility for them. I am specifically referring to Chataara and others to not get carried away with what I post ALONE (I know you also do your own research and thats good). Do you own homework and do the right thing. And of course, take the help of various posts of experienced people (like Pinnacle who is a prolific poster with much useful information on RE, unlike me who just gives fact-based arguments about direction . While one tries to see the "what to do" and
              "why", the other sees the "how" and "when").

              I try to convince with my logic. If I'm convinced other's logic is better, I adopt their logic, abandon mine and change my position and actions to reflect the new learning.

              The only thing that brings more pleasure than having your own home is having your own home with NO DEBT! And since homes are the assets on which most people take on mind-blowing loans and run the greatest risk, if I can help you guys be smart and get a house as well as keep the loans low, well, why not? You will have achieved what very few people do on their own (live a minimum-debt life).

              I will continue to post to the best of my ability so that people come out with a profit from this global crisis and secure their future for a long time to come. That is the ultimate goal.

              cheers

              Comment

              • #67

                #67

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

                Originally posted by wiseman View Post
                Folks,

                Thank you all!!! You have no idea how much pleasure it gives me to see that some one at least derives some benefit from my wild rants !

                Yes, I do spend a while (sometimes it takes 2 hours or more) to think, research, write, edit, spell/grammer check and tune the post to say exactly what I meant to say. But the aim is to make each one a work of art , so that when you revisit them again in future it still has timeless value (otherwise whats the use? )

                I personally follow my convictions through my actions. And this way I have always managed to keep the food on the table and a (non-leaky) roof over my family's head (and maybe put away some cash for the proverbial rainy day).

                When I see that others have used my posts to make good decisions, it humbles me that the good Lord has given me the ability to learn from my mistakes (I have made several of them as well) as well as talk about them in a way that people appreciate and find useful.

                I'm also very unhappy and apalled that sometimes I use my written language skills in taking off on people (shows poor judgement and culture). If anyone is hurt (Natraj, maybe?), my unconditional apology . And it will not be seen again!!!

                CAVEAT
                Nevertheless, I would request everyone to make the FINAL CALL about their investment decisions THEMSELVES and take full responsibility for them. I am specifically referring to Chataara and others to not get carried away with what I post ALONE (I know you also do your own research and thats good). Do you own homework and do the right thing. And of course, take the help of various posts of experienced people (like Pinnacle who is a prolific poster with much useful information on RE, unlike me who just gives fact-based arguments about direction . While one tries to see the "what to do" and
                "why", the other sees the "how" and "when").

                I try to convince with my logic. If I'm convinced other's logic is better, I adopt their logic, abandon mine and change my position and actions to reflect the new learning.

                The only thing that brings more pleasure than having your own home is having your own home with NO DEBT! And since homes are the assets on which most people take on mind-blowing loans and run the greatest risk, if I can help you guys be smart and get a house as well as keep the loans low, well, why not? You will have achieved what very few people do on their own (live a minimum-debt life).

                I will continue to post to the best of my ability so that people come out with a profit from this global crisis and secure their future for a long time to come. That is the ultimate goal.

                cheers
                Wiseman,
                Looks like SBI cheif agree with your view on Indian RE. Just like you, he also thinks that RE price in India to fall 50% atleast.

                This is what SBI cheif has to say
                http://www.financialexpress.com/news...-chief/383260/

                Comment

                • #68

                  #68

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

                  Least in city centers ... most in outskirts

                  Originally posted by arun1288
                  Mr.Wiseman your post are fantastic.do you think the prices of land in prime localities like anna nagar,kilpauk,besant nagar and others would come down?
                  recently i checked out a new flat in anna nagar near SMF hospital,the builder's price is 10500/sq.ft and for a 1500 3BHk flat it cost more than 1.65 cr including all the deposits.its shocking to hear such huge price for a flat.

                  Thanks Arun.

                  In My Opinion, city centers are least affected mainly for following reasons:

                  1. They have taken the longest time to gain in value (remember Fort St.George was built over 400 years ago)

                  2. They have the best infrastructure (relative to outlying areas)

                  3. They are owned by people across a wide spectrum of industry as well as people with more wealth (generally) who have ability to sustain themselves financially thru crises. Therefore, even if one or two industries goes down, the effect will not be so sharp as the case if IT goes down on properties in South Madras (being an oldtimer I still like the name Madras, it has its own charm, though the Fort was apparently built between two fishing villages known as Chennai patnam and Madras patnam and therefore the names .

                  Most importantly it must not go down because I have some property on Radhakrishnan Salai and would hate to lose money .

                  Property is the second best choice of investment (Stocks being the best, though for many people who consider stocks to be a gamble including my 70+ father , land still remains the best. But gains are best when they happen gradually over time since they rarely decline much later. Property that have seen sharp and undue rise in a short time (due to speculation) generally wait for these kind of declines and fall enough to ensure that they too show slow and steady gains over longer durations.

                  In modern times, since speculative intent has soared sharply, naturally the gains as well as declines are bigger. So, entry timing is crucial IF you want your land assets to give you an above market return. Even though most people say that they are buying for posterity and will not sell their land and therefore it should not be treated as a short-term asset, wouldn't you like it if your property gave you good gains from the time you picked it up (after all you never know when an emergency may require you to sell it!!!)


                  cheers

                  Comment

                  • #69

                    #69

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

                    Thank you for sharing useful topics.You might want to consider creating some type of entity, such as an LLC, to manage the trust. Hell, some people even create a S-corp to manage the LLC. It all depends on your investing goals. You should talk to a CPA and a lawyer who specializes in real estate investing for advice.

                    Comment

                    • #70

                      #70

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

                      See this. Real estae prices in chennai are bound to fall
                      ===============================================

                      Global fin crisis to slow worldwide 2009 IT spending

                      Press Trust of India / Silicon Valley November 13, 2008, 15:15 IST


                      Worldwide spending on information technology, especially in the United States will slow "significantly" in 2009 due to the global financial crisis, a leading IT market intelligence firm has forecast.

                      Worldwide IT spending will grow 2.6% year over year in 2009, down from the pre-crisis forecast of 5.9% growth, according to a newly revised forecast from IDC.

                      In the United States, IT spending growth is expected to be 0.9% in 2009, much lower than the 4.2% growth forecast in August.

                      "Although all the economic forecasts went from up slightly to down drastically in a matter of days, the good news is that IT is in a better position than ever to resist the downward pull of a slowing economy," said John Gantz, chief research officer at the IDC.

                      "Technology is already deeply embedded in many mission-critical operations and remains critical to achieving further efficiency and productivity gains. As a result, IDC expects worldwide IT spending will continue to grow in 2009, albeit at a slower pace."

                      On a regional basis, spending growth in Japan, Western Europe, and the US will hover around one per cent in 2009.

                      In contrast, the emerging economies of Central and Eastern Europe, the Middle East and Africa, and Latin America will continue to experience healthy growth, but at levels notably lower than the double-digit gains previously forecast.

                      On a sector basis, software and services will enjoy solid growth while hardware spending, with the exception of storage, is expected to decline in 2009, the IDC said in a press release.

                      http://www.business-standard.com/india/storypage.php?tp=on&autono=49471

                      http://www.business-standard.com/india/storypage.php?tp=on&autono=49473

                      BT to cut 10,000 Jobs; may impact IT jobs in India

                      BS Reporter / Mumbai November 13, 2008, 15:22 IST


                      BT Group Plc, the UK's largest phone company, aims to cut about 6 per cent of its workforce by March 2009, to improve profitability after reporting a slide in second-quarter earnings.


                      Most of the 10,000 cuts, out of a workforce of 1,60,000, will be in the area of “indirect labor'' such as agency, contractors, subcontractors and offshore workers, the company said in a statement today.

                      BT’s earnings before interest, taxes, depreciation and amortisation fell 1.3 per cent to 1.43 billion pounds ($2.1 billion) in the second quarter.
                      A lot of the offshore work for BT is done by Tech Mahindra, BT’s IT services joint venture with the Mahindra Group, which focuses on IT solutions for the telecom industry, and some other IT companies in India.
                      BT surged the most in six years in London trading. The economic downturn makes it more difficult to win new clients and complete contracts, CFO Hanif Lalani said in a TV interview today.

                      About 4,000 positions of the planned 10,000 have already been slashed, BT said. Job cuts among people working directly for BT will be largely achieved through natural turnover, the company said.

                      BT gained as much has 14.2 pence, or 13 per cent to 126.7 pence, the biggest intraday surge since September 2002. The stock, which had lost 59 per cent this year, traded at 124.7 pence as of 8:38 am in London today.

                      Comment

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