Please read I said House not flat, not land! Should I have said HOME?
Ok I wanted to write this since last few hours but was as usual stupidly got lost seeing other messages and then thanks to Nabhishek understood editing options in this forum. Looks like tommorow I can edit all my old messages and talk bullish instead of bearish! LOL! However that is a pity with this forum!

Now coming to the point. I was reading a message from someone in another forum telling that he has bought a flat with a loan content of 50L and his EMI was some 46L p.m. and that number was 60% of net salary of his spouse and him. That was devastating information and truth in many cases. Let us analyse EMI carefully. I wont go into mathematics as it will become too complex in a forum where many dont even understand ^ (power) operator and I need to use Finance terms like CAGR (which I know most Finance guys wont know what it mathematically stands for!) just to make it look good!

Now let us take Principal = 50L. EMI = 45K and I assume No. of years = 25! Also let interest be 10%. (This may not fit into EMI formula, but just a good illustration!)
So after first year total payment made by the person who took the loan = 45x12= 5.4L
Now dont be too happy. Since of this 5.4L after one year the Principal would have diminished by just 40K and the 5L was just silly interest.
Now our government and marketing agents will tell us Tax benefits! So they will tell that you save some 20% of 40K or 8K in tax and say 30% of 1.5L of the 5L interest i.e. 50K. So you assume you only paid 5.4L-58K= 482K of which Principal reduced by 40K and interest is 442K.
Think of this differently. You paid 442K to live in this house.
Is that the real rental value?
To the best of my knowledge a 50L flat will get rent of 10 to 12K in Chennai and 15 to 20K in Bangalore. Let me take 20K to please the govt and loan providers.
So 20x12=240K was paid out of 442K towards enjoyment of house BUT WHAT ABOUT THE REMAINING 202K. Were not you the fool who spent 202K towards foolishness?
When will you recover the 202K?
Now take two scenarios.
a. Bull market as defined by yours faithfully and a set of writers on this board.
b. Bear market as defined by Wiseman and his cartel.
Let us take b. first.
In that case property value will fall, fall and fall. So your bought a 50L loan + paid say 10% upfront = 55L flat. Its value depreciates over time. You spend 202K towards foolishness! FANTASTIC.
Now after 10 years your flat value changes to 40L. Then you lost this 202K like interest over the 10 years and also 15L in loss of capital.
Question is...CAN THIS HAPPEN?
Honestly if bear cartel is right this will happen. So you should not buy a flat ever. You should not take a loan for sure (I personally dont believe in taking loans especially as I know the FOOLISHNESS element!)
However everyone you know, Tom Dick and Harry takes a loan? Why?
Now let us see the other scenario a. the Bull market.
Here the foolish value continues but over a period of time the flat worth increases to compensate it. So after 10 years the 50L flat is not 50L but say 80L. Your foolishness component is taken care of and you make a profit. So you can take loans! RIGHT? Yours faithfully yet wont take loans as he is SCARED OF THE BEAR CARTEL...ROTFL!
I wont take a loan as I dont get into a mess which I have no guarantee with as the future can be bull or bear!?
Now without any favour for Bull (a) or Bear (b). Let me compare the two and see what it means.
IF BULL is right
Market wont fall. Prices will go up to compensate the interest eaten by the bank. If someone like me puts in personal cash to buy a house (instead of loan), he will be compensated for his POTENTIAL LOSS of INTEREST by the CAGR growth in RE price. Sounds logical. Someone will tell rent, but well incase of land!!
IF BEAR is right
Now life is not LOGICAL. SO it can happen that FOOLISHNESS COST is not regained. Worse still value of RE decreases. So investing from loan makes you get into DEPRESSION. Investing own cash like me lands you into a negative zone of interest! Can it happen.
If interest from CAGR of RE is negative or low then will I invest in RE? So RE will tank. Correct? This will lead to a vicious cycle. Now why will the bank give interest if they cant invest in anything. (In any depression not only RE will fall but many things will turn negative!) So interest rates will fall down, forcing RE to come out! In other words negative growth is self correcting. However since the BEAR CARTEL has to be right (atleast according to them) RE will fall and fall and I wont get interest. What happens then? I will have to find new investment options. Forget that. What happens to RE investor? He gets into a LOAN PRISON, a MORTGAGE CRISIS. Okey we saw it in US? Well most dont know the US game and the paper transfer of Mortgages by multiple instruments. (I dont deny similar stuff is there in India, read Hindu Sunday edition a few weeks ago!) However this is not LOAN PRISON, it is Mortgage investment that put US into trouble. So the person who took the mortgage will get into a mess, he wont be able to repay the loan. Bank will seize property. Then what happens.
Multiple cases like this will result in Bank collapses. Again we saw this in US say the great Wiseys! Now what is Nationalisation of banks. Is SBI and Lehmann the same? Does the SBI chairman get a super fat bonus like the AIG guys? Hmm our Wiseys think so. NOw let us assume the great bears are right. So banks collapse and then what do we do.
If that happens then I dont need to discuss further. BUT WILL IT HAPPEN?
In India Civil war can happen for better reasons than mortgage crisis. So in reality the government in India wont let this happen. They will simply depreciate the rupee or let it fall. So your worth internationally will fall. So more money will flow in and keep the price up. Nationalised banks wont collapse easily as it is same as govt collapse.
So in all practical situations, in INDIA with nationalised banks, with SOTIC thinking, loan failure wont be allowed to percolate. It is not like Lehmann will happen in India.
Satyam can collapse, Infy can but not SBI or ONGC. Even Reliance wont fail or for that matter Tata Steel? They will be re marketed in different ways.
Ofcourse jobs will go. As I call some Pitchakarans, not derogatorily but in reality. Take the guy who till 2000 will work like a slave for 1K, now will talk as if he was born with a golden spoon. He will go back and work for 1K or that worth of money instead of dreaming of 20K as base salary. So that might yet be bigger than 1K say 5K, but it will be worth only 1K since its PURCHASING POWER will shrink.
(Incidentally with my salary that was many times the net salary of the example person and his wife I never would have taken a 50L loan in my heydays in 2002-3 when I used to work. 50L loan for a 80K salary is Pitchakaran thinking of becoming rich overnight!)
Economics is not simple. However if you can think and use logic it is VERY VERY EASY. And doing an MBA wont improve your economics. It will only give you a few jargons without u knowing the meaning (like CAGR).
So a pitchakaran is one whose real worth has been low but whose imagined worth has suddenly increased because of redefined numbers.
Just think of it like this. In TN there are almost 1lakh engineering seats today. Does it mean that in 1980s with only 1000 seats the rest of the top 1L people with aptitude for physics and maths and chemistry were worthless. Just a degree in engineering cant make you great. And then an engineering degree is not what defines programming unless u did CS. Now the horde of folks in TCS and WIPRO and the bunch are not CS guys. Even if they were they wont know what is a compiler and if they did wont know how to write one. So why do we need them. Sheer knowledge of english and the fact Americans dont UNDERSTAND ANYTHING BUT ENGLISH. Now if this advantage decreases either if AMerica is down like now or if other countries learn English does it mean Indian economy has to collapse. Cant CIRCULATION (Economically) be mainted otherwise. So IT companies will take those who know Japanese for example! Or they will make IT folks work on building cars!!!? After all if Mechanical Engineers can write cant CS grads build cars?
Please think carefully.
In summary, a fall in US RE market means nothing to Indian RE. India is yet primarily sotic, what with IT guys asking for job security. (I never knew what is job security in the IT industry I worked in, just knew how to ask more they want money and incongruity!) So in a sotic economy we cant let the system flounder in fear of civil unrest. So the simple tool from Indira Gandhi to Indus Valley was to DEPRECIATE YOUR WORTH. So get the dollar to 100 rupees or maybe 500!
OR GET THE COUNTRY GOING FORWARD IN A BULL ORBIT without currency depreciation.
So only 2 possibilities are
a. Bull market because India did not sink.
b. Bull market in terms of INR (indian rupee) for sotic reasons but with negative growth in BoP.
In both cases RE wont fall in worth in INR, it just will stay and conquer.
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