Friends,

Pl discuss how much down fall is expected in IT sector and its impact on real estate.

2008 saw about 20 to 30" downfall. How much will be in 2009?
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  • What else should you be expecting from DLF ? Try out some tests from their balance sheets. Try an acid test http://en.wikipedia.org/wiki/Acid_Test_(Liquidity_Ratio) or a debt equity ratio http://en.wikipedia.org/wiki/Debt_equity_ratio from their last quarter balance sheets. If you were running this company you will loose your sleep over it and you should. Just that they can't share it with you.

    He-Who-Must-Not-Be-Named (thanks Harry Potter !) also sometimes admits upto max Rs. 50,000 correction in RE. If there was demand, he will be out there selling it and not arguing in this forum. :-)

    I know DLF is wasting their money to prop up their share prices when they announced buy back at Rs. 600/share. I told my friends before september it will be trading around Rs. 100 this year. We are almost there. GS is having a target of Rs.124 (i.e., in 1 year).

    It is inevitable that some of the lenders or builders may not remain solvent when the investors will start asking some serious questions about demand in India by mid year or after this diwali. Wait to watch flight to safety in action. Gold is not breaking records without a reason.

    Anybody can be a CEO during a boom time. Let's see who can steer through during recession. When LTCM failed in late 90's two of its board members won nobel price for their work in finance and many believed that their strategy is solid. But the company did go bust, when Russian govt. defaulted on its debts :-)

    I know trade deficit will widen in India this year after Lehman's collapse. The news is coming out. More bad news is saved during or after election time.

    In 2007, an overseas investor would have got only Rs.40 for an USD. This year, USD/INR will go upto Rs.54 (source economic times) . In my opinion, it is still optimistic depending on various other factors. In USD terms, they 've lost about 26% "without" correction. Do you see any reason for these HNI or FII's to stay invested in India ?

    Why the lenders or sponsors (particularly banks) are cautious, why did RBI has asked banks to be cautious on taking more home loans on their balance sheets ? Why is ICICI trading at PE 10 ?

    It takes a lot of guts to own a piece of property and have a hand on reality and admit RE may not do well in the next few years. Only a few wisem'e'n can do that.

    (disclaimer: opinions expressed here are personal. I do not have any real estate. I am on 95% cash, a disastrous long term asset. I may or may not buy RE in future. I do not advise anyone to stop buying it if they think otherwise. Although, I will be curious to know their point of view. I will not argue, but I will listen and probably wouldn't change my opinion).
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  • Originally Posted by nabishek
    I feel, The calculation in the post doesnt reflect value of property worth 1 Lakh invested in 1998.

    It doesnt include the rate of returns you would get from RE.

    I will calculate as follows

    Lets assume the rate of return for RE is 20% p.a and inflation on an average was 5% p.a

    So, Inflation adjusted rate of return = 15% p.a.

    If in 1998,a property is worth Rs 1,00,000

    After 11 years(1998-2008) it would be

    1,00,000 * (1.15)^11 = Rs. 46,50,000 approx

    So, 1 Lakh worth property is not worth 1.78 Lakh but 46.5 lakhs.

    Now lets draw a parallel.

    In 1998, Mylapore/Alwarpet/TNagar was sold at around 1000-1500/sqft, so inflation,CAGR adjusted rate today should be 4650-7000/sqft.



    Abishek,

    Its nice analysis in different dimension and will be helpful for many.

    1,00,000 * (1.15)^11 = Rs. 46,50,000 approx === > This figure appears to be incorrect .

    (1.15) ^ 11 = 4.65 Approx .

    So 1,00,000 * (1.15)^11 = Rs. 4,65,000 approx .

    "In 1998, Mylapore/Alwarpet/TNagar was sold at around 1000-1500/sqft, so inflation,CAGR adjusted rate today should be 4650-7000/sqft"

    I think this valuation is also calculated with 15 % compounded interest and it suggests 4.6 times appreciation where as the calculation on Rs 1 Lac has 46 times Jump.

    Really interesting your postings are .

    Keep doing well.
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  • These builders are nothing but bunch of liers and cheats.Other day I saw interview of Omaxe CEO in a business channel.He was blaming government,banks for not reducing the interest rate and argued once banks reduce interest rate demand will pick up.But when asked about whether he will decrease price to simualte demand he replied that there are no buyers even if price is reduced because of the job situation.
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  • http://business-standard.com/india/news/risk-averse-banks-seek-150-collateral-against-loans/09/39/349816/

    Potentail buyers please wait for atlease 2 quarters.By that time atleast one developer is bound to go bankrupt and this will open the flood gates for other developers to reduce price drastically.
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  • Originally Posted by wiseman
    Dear abk,

    You are making an assumption that the DLF guy knows what he is talking about. In that case, here is my question:

    I
    There you go. 80% reached :D

    cheers


    wiseman i am not assuming ,spaul has assumed and i have corrected him in saying that the DLF fellow is misleading.
    read my post i have posted what the link by spaul says and my interpretation on that.I have been telling all along how can you take the word of a builder?
    that exactly is my question.
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  • Originally Posted by sethugm
    Abishek,

    Its nice analysis in different dimension and will be helpful for many.

    1,00,000 * (1.15)^11 = Rs. 46,50,000 approx === > This figure appears to be incorrect .

    (1.15) ^ 11 = 4.65 Approx .

    So 1,00,000 * (1.15)^11 = Rs. 4,65,000 approx .

    "In 1998, Mylapore/Alwarpet/TNagar was sold at around 1000-1500/sqft, so inflation,CAGR adjusted rate today should be 4650-7000/sqft"

    I think this valuation is also calculated with 15 % compounded interest and it suggests 4.6 times appreciation where as the calculation on Rs 1 Lac has 46 times Jump.

    Really interesting your postings are .

    Keep doing well.



    Thanks, for pointing it out sethugm.

    I missed out changing it, while editing the assumption from 10L to 1L.

    The calculation what you suggested is what I meant.I have corrected the original msg.Thanks.
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  • Originally Posted by spaul
    Thanks for pointing out the missing data, I see the missing data in my calculation and would like to incorporate the missing data as Per Capita Income instead of a gut figure (?) of 20% (in your case the rate of return). Why?

    "As house prices tends to increase at an inflation adjusted rate equivalent to the per capita income - According to Karl Case, an economics professor at Wellesley College whose name adorns the S&P Case-Shiller home-price indexes, has studied U.S. house prices going back to the 1890s. He thinks that long-run pattern is likely to continue, despite the recent choppiness."

    Had to dig around for data. From the world bank website according to their atlas method of calculating per capita income, India had a per capita income of 15050 in 1998 and 38084 in 2008 (expected). So the CAGR comes to 8.81%. That makes the 1 lakh property in 1998 to cost 2.58 lakhs in 2008.

    I did not want to come across as splitting hair here... reminded of Ronald Reagan saying "In God We Trust For Everything Else Show Me The Data". Wanted hard data to backup the rate of return you assumed as 20%.

    Though i must quickly add that i do not also give much credence to the DLF chief knowing what the heck he is talking of. Even if he knows he could be trying to place a false floor to prices to help himself. Also we know that on the upside prices shoot above reasonable levels. Prices also shoots to the downside more than what is reasonable, so i will not take a bite of his numbers due the above factors

    Do let me know if i am missing something here

    Calculation and more data at
    http://www.financegurukul.com/2009/02/21/india-inflation-adjusted-rate-from-1998/


    The 20% is a heuristic approximation i use to get the rough estimate of the returns.

    Most of the time it hold's good for Indian real estate scenario and gives the feel of the range of returns one can expect irrespective of when in the RE cycle we are estimating.

    Regarding the usage of per capita income to determine the rate of returns, I am not competent to comment whether it should be done or not.

    But, Neverthless In my opinion the RE industry growth in India is not in proportion with the Economy of the country.

    In India RE is bound by sentiments and treated in par with Bullion, That is like hedge against inflation.We dont treat it just as any asset class.

    Heard the saying "Land is Gold"?

    People tend to hold it for longer period 2-3 RE cycles where each cycle can be 20-30 years.

    Unlike many developed countries which are very small in size,scarcely populated and has their whole economy backing up the growth of every sector.India is a large country which needs the government to adopt minimum two 5 years plan to demonstrate significant development.The states are not autonomous and have their limitations.

    The density of population is more in the major cities and suburbs.It attracts lakhs of people every year, who come in search of better job and life style.When the Infrastructure development is slow and not uniform.When there aren't many townships and self sustained localities in the city, The demand is very high for the limited decent localities thats available translating into very high prices and greater returns.
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  • if you can take DLF's word this you cannot ignore

    here is some +ve news

    You are here: UTVi» News » US US economy to recover in H2CY09: NABE



    http://www.utvi.com/news/latest-business-news-us/19142/us-economy-to-recover-in-h2cy09--nabe.html

    i know many would rubbish this but the credentials are not bad.
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  • Hopes are perennial ...

    Originally Posted by abk
    here is some +ve news

    You are here: UTVi» News » US US economy to recover in H2CY09: NABE



    http://www.utvi.com/news/latest-business-news-us/19142/us-economy-to-recover-in-h2cy09--nabe.html

    i know many would rubbish this but the credentials are not bad.



    abk,

    Well as far as I know the economists who were among the few who predicted this downtrend correctly are not among the "business economists" who are predicting this revival.

    I would tend to listen to the ones who got it right in the first place. They probably are the ones who most likely know exactly how it happened and who probably know best how it will pan out in future.

    This stimulus plan will appear to bring in a period of leveling off of this depression. If you go from a -4.1% (decline) to a 0.0% flat, it will seem as though this decline is over and the economies will take off again.

    There will, however be 2 massive effects of this stimulus.

    1. The inflation that this will unleash will be higher than anything the US (and the world) has seen before. Some of the economists I'm talking about - the extremists who correctly predicted this downturn from 2006 onwards - are calculating that inflation may rise as high as 200% - per annum - for a while!!! This will create havoc in all parts of the world.

    2. While it will appear to be turning around, it will not have solved the fundamental drivers that are the real cause of this depression - massively excess credit, massively excess capacity, massively deficit capacity for the populace of this world to consume (after all you are trying to solve a problem of massively excess credit by throwing in even more massively excess credit). These factors will take a much longer time to wind down. If they are forced down - political suicide for Govts - then they may be completed soon but it is still calculated that they will take 2-3 years at least to do so. And they will wreak much greater havoc on the economies of this world.

    So, there will likely be a stagflation threat with high inflation (all that excess credit has to show up in the economy, right?) and weak currency which will not buy too much. Economies may stabilise for a while, but rebound and growth is far away yet. And people will feel rather poor (impoverished) by the state of the economy.

    Whichever way you look at it, the bulk of the pain is in front of us, not behind us, yet. :(

    Finally, I believe (from what I gather from these same extremist economists) that even if there seems to be a revival in late 2009, there will be a double dip in 2010 and beyond.

    Let us see that this does to property in India!

    Not rubbishing your comment / article. But urging you to weigh the odds!!!

    cheers
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  • Hello everyone, another new member with interest in Chennai real estate. 28 year old NRI looking for RE investment.

    When someone says 10, 20, 50% drop in RE prices, I would assume those are just random ball parking by people. If we explain the reason why someone expects 50% drop it would be more informative.

    I know the current RE prices are not sustainable in Chennai for long time. RE prices should be directly proportional to the people's buying power/borrowing power which would in turn be dependent on the current salary levels. Even with around 80K USD salary I find it difficult to believe the current price levels in Chennai...People say its because of IT that the prices have increased. But I am surprised how a person earning say 50k-70k Rs/month can expect to pay-off loan of 50L to 90L(thats the average price I see for a 3 bed apt). And by the time he pays off, his apt might be worth junk (Given the quality levels of our greedy builders). Also I am really sceptic about investment on a flat/apt in some high rise building. Land/independent homes would be great from investment point of view.

    Keep up the great work guys...most of the posts are informative except the cat fights.
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  • Originally Posted by wiseman
    abk,

    There will, however be 2 massive effects of this stimulus.

    1. The inflation that this will unleash will be higher than anything the US (and the world) has seen before. Some of the economists I'm talking about - the extremists who correctly predicted this downturn from 2006 onwards - are calculating that inflation may rise as high as 200% - per annum - for a while!!! This will create havoc in all parts of the world.

    2. While it will appear to be turning around, it will not have solved the fundamental drivers that are the real cause of this depression - massively excess credit, massively excess capacity, massively deficit capacity for the populace of this world to consume (after all you are trying to solve a problem of massively excess credit by throwing in even more massively excess credit). These factors will take a much longer time to wind down. If they are forced down - political suicide for Govts - then they may be completed soon but it is still calculated that they will take 2-3 years at least to do so. And they will wreak much greater havoc on the economies of this world.

    Let us see that this does to property in India!

    Not rubbishing your comment / article. But urging you to weigh the odds!!!

    cheers


    wiseman,
    apparently i repeat apparently what you say is a possibility(for the record everything is a possibility)
    my simple question is if the US is embarking on the 'massive excess credit"
    is it without proper application of mind.
    is there nobody in the team who understands this?
    is there a hidden agenda?
    will obama at the start take a un or miscalculated move,would he not have consulted a host of experts?
    are there no wisemen in US ;):D
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  • Cheers Guys Good News

    DLF revising the Garden City Price ....(Appreciate DLF...Not Appreciation in RE)

    Early bird offer of Rs 2,650 a sq.ft up to May 31.(which was priced @ Rs 3200 / SQFT)

    http://thehindubusinessline.com/2009/02/24/stories/2009022451031300.htm

    According to officials, DLF is “readjusting to market realities.”

    When the 53.5-acre project was launched on Old Mahabalipuram Road, about 20 km south of Chennai, a year ago the economic scene and the sentiment in the market were radically different, apart from the costs involved. But now with the slowdown, along with the drop in the cost of construction following the drop in commodity prices, the company is passing on the benefit to the buyers and doing its bit to stimulate the market.

    Cheers Guys , Dont fall prey . Be patient & you will be rewarded & you will have ample choice.
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  • Originally Posted by sethugm
    Cheers Guys Good News

    DLF revising the Garden City Price ....(Appreciate DLF...Not Appreciation in RE)

    Early bird offer of Rs 2,650 a sq.ft up to May 31.(which was priced @ Rs 3200 / SQFT)

    http://thehindubusinessline.com/2009/02/24/stories/2009022451031300.htm

    According to officials, DLF is “readjusting to market realities.”

    When the 53.5-acre project was launched on Old Mahabalipuram Road, about 20 km south of Chennai, a year ago the economic scene and the sentiment in the market were radically different, apart from the costs involved. But now with the slowdown, along with the drop in the cost of construction following the drop in commodity prices, the company is passing on the benefit to the buyers and doing its bit to stimulate the market.

    Cheers Guys , Dont fall prey . Be patient & you will be rewarded & you will have ample choice.


    Dear friend

    do you mean to say "Poruththar Bhoomi Aalwar"...

    thanks

    chataara
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  • http://www.dnaindia.com/report.asp?newsid=1233732

    Even affordable housing which is currently hyped by builders are not selling.
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  • all are not stupid are they? we have wisemen too!

    Originally Posted by BigBear
    http://www.dnaindia.com/report.asp?newsid=1233732

    Even affordable housing which is currently hyped by builders are not selling.


    affordable houses as far as launched are all far away and they were destined to be failures,unless my estimation of number of fools were wrong.
    affordabale housing were good only as weekend homes(far away from congestion,lots of open space,tranquil,swimming,health club,shopping,restaurant etc ) perfect for a weekend break.and dont forget the 400/rs auto fare one way;)
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