### RE business in Chennai collapsing

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chataara

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- If you want to know why Chennai is still trailing behind the other metros in price, the market for delhi, mumbai and bangalore,even pune potentially, is much bigger than Chennai market. Ask your North Indian friends esp. those who don't live in Chennai, at least 7 out of 10 can't think of themselves living in Chennai. It is sad, but it is true. We somehow have failed to attract these market participants.

(I am from TN and I am a prospective buyer in Chennai, if you think I am an outsider).CommentQuote0Flag - Is Chennai market bigger than Delhi and Mumbai ?Originally Posted by abkbut overall i see chennai to have a lot of headroom for the prices to rise in comparision to the other metros.where the prime places rates are 400-600% more than prime places of chennai

If you want to know why Chennai is still trailing behind the other metros in price, the market for delhi, mumbai and bangalore,even pune potentially, is much bigger than Chennai market. Ask your North Indian friends esp. those who don't live in Chennai, at least 7 out of 10 can't think of themselves living in Chennai. It is sad, but it is true. We somehow have failed to attract these market participants.

(I am from TN and I am a prospective buyer in Chennai, if you think I am an outsider).CommentQuote0Flag - Dont be Greedy Again

RE prices has raised not in line with the growth of the country with allowed tolerence and bound to 40-60 percent correction.Seeing the land/flat prices,40 % correction will happen even in prime places like Adyar AnnaNagar RAPuram .Rs 10000 per SQFT is ridiculous & the job trend and EMI repayability & bank margin will bring it down to below Rs 6000 per SQFT levels.Sure it will reach Rs 6000 levels in two years though it may see some resistance early & finally succumb.

Seeing the high prices in prime places & huge availability in OMR, people will move towards OMR and places like Adyar RAPuram will see correction in prices.People are learning lessons seeing the high EMI default and will avoid getting into lifetime burden.

From Perungudi to Padur - Huge availability .

IT and ITES seeing correction in revenue generation ,increased competition in retaining clients and reduced billing rates & cost cutting & downsizing & layoffs will fool the people who still hoping to see upward trend in RE prices not only in Chennai but any place in India.CommentQuote0Flag - Dear friends,

I gather, there was some news item in SUN TV on late evening news time on DLF on 28/03/2009. It seems buyers agitating to get back their money paid, DLF saying they will refund after deducting a whopping Rs.4 lakhs or so? Any update from those members and guests knowing this issue on the plight of the buyers who trusted DLF and out their hard earned/took at high interest rates money? In fact, I expected some big news coming out in the English & Tamil dailies in the last couple of days, but nothing came up in any paper? I wonder why no news on this?

ks2071746CommentQuote0Flag - Yes, Perungudi to Padur, about 30 KM. Both sides take about 3 KM. So about 126 sq km of land is available even if 30% is considered as not usable or already in use

Huge parcels of land. What they are going to do when IT is down?CommentQuote0Flag - Originally Posted by Nataraajg007Yes, Perungudi to Padur, about 30 KM. Both sides take about 3 KM. So about 126 sq km of land is available even if 30% is considered as not usable or already in use

Huge parcels of land. What they are going to do when IT is down?

grow brains:DCommentQuote0Flag - Originally Posted by ks2071746Dear friends,

I gather, there was some news item in SUN TV on late evening news time on DLF on 28/03/2009. It seems buyers agitating to get back their money paid, DLF saying they will refund after deducting a whopping Rs.4 lakhs or so? Any update from those members and guests knowing this issue on the plight of the buyers who trusted DLF and out their hard earned/took at high interest rates money? In fact, I expected some big news coming out in the English & Tamil dailies in the last couple of days, but nothing came up in any paper? I wonder why no news on this?

ks2071746

Dear friends,

I have subsequently got into the posting by nataraaj on this on the news item in Economic Times dt. 29/03.. Thanks.

ks2071746CommentQuote0Flag - dear ks

newspapers get ad revenue from dlf so dont expect any bad news about dlf to be reported on papersCommentQuote0Flag - Originally Posted by wisemanAbishek,

Absolutely correct. So we have the logic for a 50% fall by the principle of "reversal to the mean". But we are forgetting another observation. When there are huge swings away from the mean, and there is reversal to the mean, there is an excess in that direction which tends to take the trend beyond the mean for a short while. So, while you are correct that 50% is what the thumbrule says, there may be a swing which goes beyond 50% for some time before swinging right back. That would be a golden opportunity to pick property at bargain prices!

cheers

Dear Wiseman,

I came across some interesting articles, which talks about the volumes and corrections thats already happening.

It says that the real correction/decline thats happened since last quarter is not clear because there's no significant sale happening.

Another Interesting article is as follows which reiterates what you have been predicting so long.

I have a doubt regarding the "reversal to the mean" logic.Hope you could clarify.

without getting too mathematical about it.To plot a normal distribution graph none of the data like mean,variance or standard deviation is easily for available RE.

So plotting two line graph, one for the mean and the other for the market rate against years(time).we can observe that the market rate is way above the mean.

You are suggesting that the market rate will swing below the mean before stabilizing and overlapping again at the mean.

I feel that since the correction is not continous and linear we may see lot of plateau regions where the price stagnates for years while the mean catches up with the market rate.

Has this swing below the mean happened before?And was sale happening at that price?

The reason why I ask this is, if RE price rides on the mean, it would become the most safest investment with zero variance and totally risk free.It sounds too good to be true.CommentQuote0Flag - Originally Posted by nabishekDear Wiseman,

I came across some interesting articles, which talks about the volumes and corrections thats already happening.

It says that the real correction/decline thats happened since last quarter is not clear because there's no significant sale happening.

Another Interesting article is as follows which reiterates what you have been predicting so long.

I have a doubt regarding the "reversal to the mean" logic.Hope you could clarify.

without getting too mathematical about it.To plot a normal distribution graph none of the data like mean,variance or standard deviation is easily for available RE.

So plotting two line graph, one for the mean and the other for the market rate against years(time).we can observe that the market rate is way above the mean.

You are suggesting that the market rate will swing below the mean before stabilizing and overlapping again at the mean.

I feel that since the correction is not continous and linear we may see lot of plateau regions where the price stagnates for years while the mean catches up with the market rate.

Has this swing below the mean happened before?And was sale happening at that price?

The reason why I ask this is, if RE price rides on the mean, it would become the most safest investment with zero variance and totally risk free.It sounds too good to be true.

Very good link Abishek.Your last point really made lot of sense.

Sellers holding land in city will argue price will decrease only in suburb.Those holding lands in suburb will argue price of flats in suburb will only decrease and those holding flats in suburb will argue prices will not decrease at all.Time to accept the reality that price will fall everywhere irrespective of the location.CommentQuote0Flag - I think reversal to the mean makes sense when compared with a time period. For instance in the case of stocks you compare the current price of a stock over 50 day moving average, 100 day moving average etc.

On similar lines if you consider 10yr, 50 yr.. moving average line of real estate you will see that the current real estate prices are way out of whack.

This link http://www.financegurukul.com/2009/01/18/still-to-come-big-drop-in-us-home-prices/ shows the comparison with Japan for US and UK real estate markets. Japan we have been there done that, so we know how that played out. US and UK is a train wreck taking place in front of our eyes in slow motion.

Coming to the Indian markets, i would be willing to place my bets that the experience will be similar if not same.

cheersCommentQuote0Flag - Dear friend,

If the prices fall, every prospective buyer will be happy. If it happens soon, the buyers will be more happy and will go in for their dream flats.

ks2071746CommentQuote0Flag - An interesting observation!Originally Posted by nabishekDear Wiseman,

I came across some interesting articles, which talks about the volumes and corrections thats already happening.

It says that the real correction/decline thats happened since last quarter is not clear because there's no significant sale happening.

Another Interesting article is as follows which reiterates what you have been predicting so long.

I have a doubt regarding the "reversal to the mean" logic.Hope you could clarify.

without getting too mathematical about it.To plot a normal distribution graph none of the data like mean,variance or standard deviation is easily for available RE.

So plotting two line graph, one for the mean and the other for the market rate against years(time).we can observe that the market rate is way above the mean.

You are suggesting that the market rate will swing below the mean before stabilizing and overlapping again at the mean.

I feel that since the correction is not continous and linear we may see lot of plateau regions where the price stagnates for years while the mean catches up with the market rate.

Has this swing below the mean happened before?And was sale happening at that price?

The reason why I ask this is, if RE price rides on the mean, it would become the most safest investment with zero variance and totally risk free.It sounds too good to be true.

When you plot prices (y-axis) over time (x-axis), you get a scattered plot. Generally a best-fit trendline is drawn and this is considered the mean (this is not adjusted for inflation). This line takes on increasing significance when the plot is over a long period of time (say 100 years).

So, reversal to the mean means prices falling back to connect with the line projected to that point in time. In countries like India this line slopes upwards from left to right, meaning future prices always are higher than past prices - generally!

The key point is the word "generally". Sometimes prices rise so fast and so much that when the rise is exhausted, prices will fall back. As you said, after an initial fall it may simply stagnate to wait for the mean to catch up!

This catch up situation generally happens only in shallow recessions, when people's purchasing power gets only slightly eroded.

This time, my bet is that, people's purchasing power is going to get seriously eroded over time. So, holding power too will fall sharply and over several years. Therefore, this time the price may not stagnate. It may simply fall all the way to the mean and maybe even beyond. Whats worse! It may even stay below the mean for a longer period, before energy (purchasing power) returns to the market.

cheersCommentQuote0Flag - Originally Posted by wisemanWhen you plot prices (y-axis) over time (x-axis), you get a scattered plot. Generally a best-fit trendline is drawn and this is considered the mean (this is not adjusted for inflation). This line takes on increasing significance when the plot is over a long period of time (say 100 years).

So, reversal to the mean means prices falling back to connect with the line projected to that point in time. In countries like India this line slopes upwards from left to right, meaning future prices always are higher than past prices - generally!

The key point is the word "generally". Sometimes prices rise so fast and so much that when the rise is exhausted, prices will fall back. As you said, after an initial fall it may simply stagnate to wait for the mean to catch up!

This catch up situation generally happens only in shallow recessions, when people's purchasing power gets only slightly eroded.

This time, my bet is that, people's purchasing power is going to get seriously eroded over time. So, holding power too will fall sharply and over several years. Therefore, this time the price may not stagnate. It may simply fall all the way to the mean and maybe even beyond. Whats worse! It may even stay below the mean for a longer period, before energy (purchasing power) returns to the market.

cheers

Thanks for the detailed response, wiseman.

As wealth gets eroded, Purchasing power and confidence will also be crushed.The middle class/upper middle class who depended solely on the newly created jobs and all those who were enjoying the globalization effect will surely be affected.

Rediff carries an interesting article, which shows how the fastest growing states are also the highest debt ridden ones, guess they too got carried away and over-leveraged.

Growth came at a cost, DEBT!

Rank: 7

State: Tamil Nadu

Debt position (2006-2007): Rs 68,655 crore (Rs 686.55 billion)

State income (2005-2006): Rs 194,528 crore (Rs 1,945.28 billion)

Per capita income (2005-2006): Rs 29,958

Population (2001 census): 6.211 crore (62.11 million)

Population below poverty line (2004-2005): 22.5 per cent

Infant mortality rate (2006): 16 per 1,000CommentQuote0Flag - Originally Posted by nabishekDear Wiseman,

I came across some interesting articles, which talks about the volumes and corrections thats already happening.

It says that the real correction/decline thats happened since last quarter is not clear because there's no significant sale happening.

Another Interesting article is as follows which reiterates what you have been predicting so long.

I have a doubt regarding the "reversal to the mean" logic.Hope you could clarify.

without getting too mathematical about it.To plot a normal distribution graph none of the data like mean,variance or standard deviation is easily for available RE.

So plotting two line graph, one for the mean and the other for the market rate against years(time).we can observe that the market rate is way above the mean.

You are suggesting that the market rate will swing below the mean before stabilizing and overlapping again at the mean.

I feel that since the correction is not continous and linear we may see lot of plateau regions where the price stagnates for years while the mean catches up with the market rate.

Has this swing below the mean happened before?And was sale happening at that price?

The reason why I ask this is, if RE price rides on the mean, it would become the most safest investment with zero variance and totally risk free.It sounds too good to be true.

The first article in Hindu clearly shows what has happened and will happen in every boom bust scenario in RE in Chennai. During the bust the price of prime land remains static with lesser transactions and with some move upwards, the price of lands in outskirts becomes unsaleable. It will however boom in the next cycle to a level that will justify its purchase with a CAGR of 20%.

Now flats are a different ball game and this time they have been bought by foolish folks with BORROWED MONEY. SO the second article is showing the story of one such fella. Well even those type of apartments dont seem to be falling in Bangalore or Chennai. Yet an Adarsh palace is being quoted at 1.4cr for a 1800sft 3bd apartment. Strange though are the ways of RE and the ways of the silly bears!CommentQuote0Flag