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- Great share, excellent article .:):bab (6):CommentQuote0Flag
- Originally Posted by sh-saxenaInteresting article in The Economist (March,2011): ‘Bricks and Slaughter’
Part of a series by the economist exploring the lessons to be learned from the global property bubble. Should be valid for India RE also.
Some key quotes from the article :
“Property is widely seen as a safe asset. It is arguably the most dangerous of all…”
An even bigger reason to beware of property is the amount of debt it involves. Most people do not borrow to buy shares and bonds, and if they do, the degree of leverage usually hovers around half the value of the investment. Moreover, when stock prices fall, borrowers can usually get their loan-to-value ratios back into balance by selling some of the shares. By contrast, in many pre-crisis housing markets buyers routinely took on loans worth 90% or more of the value of the property. Most had no way of bringing down their debt short of selling the whole house.
Property bubbles almost always start because fundamentals such as population growth, interest rates and economic expansion are benign….These fundamentals explain why many market participants are able to persuade themselves that huge price rises are justified and sustainable.
…If housing were simply a financial investment, buyers might be clearer-eyed in their decision-making. People generally do not fall in love with government bonds, and Treasuries have no other use to compensate for a fall in value. Housing is different. Greg Davies, a behavioural-finance expert at Barclays Wealth, says the experience of buying a home is a largely emotional one, similar to that of buying art. That makes it likelier that people will pay over the odds.
Once house prices start to rise, the momentum can build up quickly….The price of residential property is set locally by the latest transactions….One absurd bid can push up prices for lots of people.
As prices rise, property is arguably more likely than many other asset classes to encourage speculation. One reason is that property is so much part of everyday life. People do not gossip about the value of copper and tin, but they like to talk about how much the neighbour’s house went for. They watch endless TV shows about houses and fancy themselves as interior designers, able to raise the price of their home with a new sofa and artful lighting.
…Homeowners overestimate the value of their homes by an average of 5-10%. Those who had bought during good times tended to be more optimistic in their valuations, whereas those who had bought during a downturn were more realistic. Expectations of higher prices explain why bubble-era buyers were more willing to buy risky mortgage products and take on ever greater quantities of debt.
If prices will keep on increasing like gurgaon or dwarka then definatley crisis which came in US same will come in india very soon.
Lot of home defaulters will be in india very soon. This is looking quite possible.
One side some powerful people( builders and brokers) are so much greedy and keep on increasing price and on another side large group of common peoply who have basic need of home. This large group of common people will do something wrong to complete his basic needs and these powerful people ( brokers and builders) will alwasy remain in profit.
Some common peoples will definatley take home loan by fake documents or some other fake ways and later every thing in RE will collapse.CommentQuote0Flag