Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Comparing app.les to oranges

    Originally Posted by neerajbans
    Indian IT companies are making Net profit in the range of 15-25% at today's rate and hence has a lot of headroom to let the profit fall and keep the wages going (global companies have PAT around 6-10%).

    Companies follow the pyramid structure and keep adding fresh graduates in order to keep the costs down. Entry level salary, for past 4 years, is constant at 2.5 lakhs to 2.8 lakhs per year and has not changed much. At 30% growth rate, companies giving 30% hike thus maintain a status quo of its internal costs, rather economies of scale increases profitability.
    Recent noise around Indian IT becoming expensive is more hoopla created by the companies to tame the salary hike and also a little bit of real pressure of growth slowing down to 15- 20%.

    US & UK are still 3 times more expensive then us. A 2 bed 700 sqft apartment at London costs $800K. Husband and wife working together generally takes a loan for 25 years to pay it off. Average salary in London is $50K and even with Health and School free, there are hardly any savings, rather each household has atleast $30K financial loan (excl. mortgage).

    Also, Indian IT companies are now moving towards Industrialized Services (services not directly dependent on bodies). All the top 5 biggies have put a target of 10% of the revenues to come from the Industrialized services by 2012 and thereafter growing further.

    Lets not write off the Indian IT story so soon.



    First of all, the PAT margins used to be 25% - 40% around 15 years ago. Today, you will be hard pressed to find s/w exporters making more than 15% PAT. You statement of 15%-25% makes it look as though 15% is on the lower end. Its more like the middle-higher end. And remember, these are the top companies. A whole lot of mid-tier and lower companies do not make anywhere near these margins.

    Second, US companies pay tax at high rates. Add 33% Tax to our exporters (and they have been desperately looking to see how to extend these benefits long after they should have gone) and you see our margins muh closer to US company margins (66% of 15% is 10%!):)

    Then this story about how you can go on cutting cost by hiring large masses of cattle-class, while still trying to provide ever-higher quality of service is a Himalayan Paradox. Since our IT "Leaders" are so poor at innovation, they will continue to build out our IT Factories and their customers will continue to keep cutting their rates.

    Our IT Industry had lost its way in the crucial period 1998-2000. They should have gone after the Internet Revolution which was on the horizon then. Instead, they went after the low-hanging, fruit of Y2K and missed a 2-year Head Start and made matter worse by going down the path of "E-Clerks to the World" by filling out factories with warm bodied drones doing what nobody wanted to do.

    While I will not write off IT too soon, you must also not read too much into this Sunset Industry at this stage. It has reached its plateau stage of maturity and is trying all kinds of life-cycle extensions which will only buy it some more time and make the decline more gentle. Expect salaries to gradually decline and come down to other industry levels over the next decade or so.

    cheers
    CommentQuote
  • Realtors forced to borrow at36-40% amid fund shortage

    Realtors forced to borrow at36-40% amid fund shortage - Home - livemint.com

    Current status of RE Developers in India, showing troubles ahead.
    CommentQuote
  • CommentQuote
  • Originally Posted by patilbha
    Realtors forced to borrow at36-40% amid fund shortage - Home - livemint.com

    Current status of RE Developers in India, showing troubles ahead.


    who is lending them hoping to get back their money along with interest :o indeed this is worst kind of speculative investment
    CommentQuote
  • They take collateral

    Originally Posted by puser
    who is lending them hoping to get back their money along with interest :o indeed this is worst kind of speculative investment



    If you used to go to lenders who lent against gold in the old days (when gold was 6k?!) they used to give you around 65% of the prevailing value. This covered their capital as well as the debt, just in case!

    Today the speculative levels for gold has gone so high (and the relative safety of other assets so much lower) that not only are these very same lenders are now lending as much as 90% of the current value (which is around 400% the old value!!!:D).

    Similarly, lenders to RE at these high rates would lend against collateral with a high safety margin (say 60%-70% of value) so that, even if there is default they can sell the property and recover the capital as well as the interest. Less prime the property, greater the safety margin.

    In fact this is a very low risk and high return business. And this is happening mainly due to the greed of the builders who borrowed heavily, built substantially and kept prices unsustainably!:)

    As you sow, so you reap!

    cheers
    CommentQuote
  • Originally Posted by puser
    who is lending them hoping to get back their money along with interest :o indeed this is worst kind of speculative investment

    It is very hard for the builders to find financiers in current markets. However, those who lend, take lot of collateral whose valuation is almost at par with current assets of RE firms.

    In short, the collateral too has increased for RE firms. The recent mortgage of shares by promoters of several RE cos like Ansal-API, HDIL, Unitech etc. shows the same. Even the local builder, KUL of Lallu Jain isn't far behind in this.
    CommentQuote
  • Originally Posted by patilbha
    Realtors forced to borrow at36-40% amid fund shortage - Home - livemint.com

    Current status of RE Developers in India, showing troubles ahead.

    Very good link :). Some of the important points, which we always discuss are:-

    Builders are raising money at 32-36% from private lenders as there are no funds available from banks. This level of dependency has started only in the recent months and possibly the first time in the last three years......

    Rajesh Mehta, chairman of Bangalore-based jewellery maker Rajesh Exports Ltd, who does some private lending, said he is seeing a lot of demand from real estate developers largely to complete projects and to launch those that they can’t start on their own. Mehta added that the demand for such loans is almost as high as it was in 2008-09. Builders wouldn’t agree to pay extra and higher interest rates if they were not in need, considering that banks are not lending and sales are not happening,” he said.

    Developers are not getting buyers. If they reduce the prices, it will compensate the prospective buyers.

    These basically show that the story may be even worse than 2008-09 when prices dipped coz there are no teaser rates, low interest on home loans is gone & inflation is taking toll on mango man. We already see several projects stalled in the city or delayed by large period. Infact, in Delhi-NCR, a whopping 1,60,000 flats are behind delivery date by over 1+ year .

    Even in Pune, just look around & you won't find the constro pace encouraging enough to book in under-constro projects.
    CommentQuote
  • Originally Posted by wiseman
    First of all, the PAT margins used to be 25% - 40% around 15 years ago. Today, you will be hard pressed to find s/w exporters making more than 15% PAT. You statement of 15%-25% makes it look as though 15% is on the lower end. Its more like the middle-higher end. And remember, these are the top companies. A whole lot of mid-tier and lower companies do not make anywhere near these margins.

    Second, US companies pay tax at high rates. Add 33% Tax to our exporters (and they have been desperately looking to see how to extend these benefits long after they should have gone) and you see our margins muh closer to US company margins (66% of 15% is 10%!):)

    Then this story about how you can go on cutting cost by hiring large masses of cattle-class, while still trying to provide ever-higher quality of service is a Himalayan Paradox. Since our IT "Leaders" are so poor at innovation, they will continue to build out our IT Factories and their customers will continue to keep cutting their rates.

    Our IT Industry had lost its way in the crucial period 1998-2000. They should have gone after the Internet Revolution which was on the horizon then. Instead, they went after the low-hanging, fruit of Y2K and missed a 2-year Head Start and made matter worse by going down the path of "E-Clerks to the World" by filling out factories with warm bodied drones doing what nobody wanted to do.

    While I will not write off IT too soon, you must also not read too much into this Sunset Industry at this stage. It has reached its plateau stage of maturity and is trying all kinds of life-cycle extensions which will only buy it some more time and make the decline more gentle. Expect salaries to gradually decline and come down to other industry levels over the next decade or so.

    cheers


    Hi wiseman,

    no offence, but this is fact from my organization.

    I'm working in India Captive Center of a UK Based Mutual Fund House. Our India billing rates are 20 GBP/hr. Whereas UK rates 100 GBP/hr. Both these rates are for permanent employees and not contractors, that are usually paid pretty hefty rates.

    My company has 3 offshore centers globally - one in Tunisia to serve French speaking clients (like France, Germany), 2nd in China to serve Far-East clients in China, Taiwan, Japan, and Korea. And 3rd in India to serve rest (Indians, English speaking Europeans). However, important thing to note is that both Tunisia and Chinese centers are not involved in any IT work. But rather backoffice customer support (like regarding sales, accounting, marketing, finance etc.) tasks.

    Important thing is that China and Tunisia centers have been opened in last 3 years only. So the way i make it out - low skilled BPO jobs may move to Far-East and African nations, but IT jobs like designing, development, and, testing, consulting, engineering etc. are going to stay here for long.

    And my hunch for this is that these kind of jobs don't require just English speaking, but high degree of analytical and brainstorming skills. And that comes in us due to our education system - with primary focus on Mathematics and Physics (for Science grads).

    If anyone gets any chance, Compare the mathematical and analytical skills of Indians/Chinese/Americans/British. I believe that Maths and Physics form the foundation of any knowledge based economy. So till we keep sharpening these two skills in our children, we need not worry about knowledge based jobs like IT.
    CommentQuote
  • Originally Posted by bhuvang
    Hi wiseman,

    no offence, but this is fact from my organization.

    I'm working in India Captive Center of a UK Based Mutual Fund House. Our India billing rates are 20 GBP/hr. Whereas UK rates 100 GBP/hr. Both these rates are for permanent employees and not contractors, that are usually paid pretty hefty rates.

    My company has 3 offshore centers globally - one in Tunisia to serve French speaking clients (like France, Germany), 2nd in China to serve Far-East clients in China, Taiwan, Japan, and Korea. And 3rd in India to serve rest (Indians, English speaking Europeans). However, important thing to note is that both Tunisia and Chinese centers are not involved in any IT work. But rather backoffice customer support (like regarding sales, accounting, marketing, finance etc.) tasks.

    Important thing is that China and Tunisia centers have been opened in last 3 years only. So the way i make it out - low skilled BPO jobs may move to Far-East and African nations, but IT jobs like designing, development, and, testing, consulting, engineering etc. are going to stay here for long.

    And my hunch for this is that these kind of jobs don't require just English speaking, but high degree of analytical and brainstorming skills. And that comes in us due to our education system - with primary focus on Mathematics and Physics (for Science grads).

    If anyone gets any chance, Compare the mathematical and analytical skills of Indians/Chinese/Americans/British. I believe that Maths and Physics form the foundation of any knowledge based economy. So till we keep sharpening these two skills in our children, we need not worry about knowledge based jobs like IT.


    I didn't agree on this. I think neither India's education system is good , nor we are better than America, British or even China when it comes to the fields of maths and physics. We have followed every branch of maths and physics that was formulated by either Europeons or Americans. And now a days, China is doing more research in the science field. You can think like this, some company makes "editing for film industry" and some editor uses this editing to edit his film ( & eventually film becomes very good after editing), so does it mean that editor knows each & everything behind this editing ? Similary we indians are still too much behind from european or americans in the fields of technology ( or in the basic terms maths and phsyics) that is why we still need to buy fighter jet and other army/navy weapon from other countries. Yes I do agree that technology is the key to become developed country, however this is not totally independent thing, as developed economies have more funds to leverage technology.
    CommentQuote
  • The world economy in a familiar place: the brink of an abyss

    From hope to fear in just eight days: the world economy now stands on a precipice.

    Last fortnight, global equity markets were sitting pretty, secure in the expectation of good US employment figures and some breathing space in the European sovereign debt saga. Now, that confidence has disappeared. In its place, investors see contagion gripping the eurozone, renewed weakness in the American economy and the possibility that the issuer of the world’s reserve currency will default in little more than two weeks.

    An August panic similar to that in 2007 and 2008 no longer appears far-fetched. Only this time, the global economy is far less well-equipped to cope.

    Policymakers are worried. Ben Bernanke, Federal Reserve chairman, described a possible US default as a “financial calamity” this week, while Guilio Tremonti, Italy’s Finance Minister, likened the eurozone crisis to the Titanic, where “not even first-class passengers can save themselves”.

    Read complete news here:-

    The world economy in a familiar place: the brink of an abyss - Indian Express
    CommentQuote
  • Originally Posted by BlotJab
    I didn't agree on this. I think neither India's education system is good , nor we are better than America, British or even China when it comes to the fields of maths and physics. We have followed every branch of maths and physics that was formulated by either Europeons or Americans. And now a days, China is doing more research in the science field. You can think like this, some company makes "editing for film industry" and some editor uses this editing to edit his film ( & eventually film becomes very good after editing), so does it mean that editor knows each & everything behind this editing ? Similary we indians are still too much behind from european or americans in the fields of technology ( or in the basic terms maths and phsyics) that is why we still need to buy fighter jet and other army/navy weapon from other countries. Yes I do agree that technology is the key to become developed country, however this is not totally independent thing, as developed economies have more funds to leverage technology.


    Hi dude,
    we can't do a direct comparison between India and Wester Nations. Remember India's quest for growth started just 64 years back (1964), whereas for US it started in 1776 (almost 235 years ago). Most of the major EU countries were never colonies, so i won't compare them. Hence with a compartive analysis taking into account time and resource availability - i believe India has done far better than US.

    Yes i agree that in high-end & mission critical technologies, we are still behind west, but we shouldn't forget that it even West took decades to master such skills. And they did spent billions in research (which they garnered during centuries of Imperialistic rule on Asia and Africa).

    Coming back to India - if i'm not wrong, in 1947 - we used to import virtually everything (even needles). Check this link that states in what deplorable condition we were left into -
    Economic history of India - Wikipedia, the free encyclopedia

    Secondly, regarding following Americans/Chinese/Brits in Maths, check these stats -
    Facts to make every Indian Proud
    38% of doctors in USA are Indians
    12% of scientists in USA are Indians
    36% of NASA scientists are Indians
    34% of Microsoft employees are Indians
    28% of IBM employees are Indians
    17% of INTEL scientists are Indians
    13% of XEROX employees are Indians

    Famous quotes (you can check all these and many more on Net):
    ------------------------------------------------------------
    Albert Einstein said: We owe a lot to the Indians, who taught us how to count, without which no worthwhile scientific discovery could have been made.

    Mark Twain said: India is the cradle of the human race, the birthplace of human speech, the mother of history,the grandmother of legend, and the great grand mother of tradition. Our most valuable and most constructive materials in the history of man are treasured up in India only.

    Hu Shih, former Ambassador of China to USA said:India conquered and dominated China culturally for 20 centuries without ever having to send a single soldier across her border.

    For More, check - INDIA's contributions to the world - SciForums.com

    Regarding buying so called weapons from West (all data from above link)-
    India is the 7th nuclear power in the world
    India is the 4th nation in the world to have developed/or developing a nuclear submarine
    India is the 5th nation in the world to be in the multi billion dollar space commerce business.
    India is the 4th nation in the world to develop (or nearly to) ICBM's(can travel up to 14,000km)
    India is the 3rd nation in the world, to be able to develop land based and sea based cruise missiles.

    YES, India do lag behind at lot of fronts, but that's more because of the menace like corruption etc., and, not because of our education system.

    Regarding CHINA - yes they have done a splendid job and hats off to them. But then, India and China can simply not be compared since both have totally different models.

    China adopted a manufacturing-led growth model (forms >50% of its GDP), while India adopted a service-led growth model (forms >50% of GDP). Also, China is a communist nation, means ALL THE RESOURCES ARE OWNED AND CONTROLLED BY GOVERNMENT, thereby making decision-making and execution super-fast which couldn't even be challenged. eg. - think yesterday or so there was a news that for 6 laning of NH-24 NHAI would complete land aquisition process by 2015). This thing wouldn't have taken more than 5 months in China, since land resource is actually owned and control by Chinese goverment only. At this speed, even West can't compete with China.

    And finally - not going overboard with sheer PATRIOTISM, i do believe IT does have a long bright future in India, though its growth may slow down and become more stable/sustainable like other core industries.
    CommentQuote
  • Originally Posted by realacres
    From hope to fear in just eight days: the world economy now stands on a precipice.

    Last fortnight, global equity markets were sitting pretty, secure in the expectation of good US employment figures and some breathing space in the European sovereign debt saga. Now, that confidence has disappeared. In its place, investors see contagion gripping the eurozone, renewed weakness in the American economy and the possibility that the issuer of the world’s reserve currency will default in little more than two weeks.

    An August panic similar to that in 2007 and 2008 no longer appears far-fetched. Only this time, the global economy is far less well-equipped to cope.

    Policymakers are worried. Ben Bernanke, Federal Reserve chairman, described a possible US default as a “financial calamity” this week, while Guilio Tremonti, Italy’s Finance Minister, likened the eurozone crisis to the Titanic, where “not even first-class passengers can save themselves”.

    Read complete news here:-

    The world economy in a familiar place: the brink of an abyss - Indian Express



    A US default (even a technical one) would send strong shivers across World Economy, esp. to major lenders of US debt like China, Japan, and, India. World currencies, esp. USD and EUR, can easily go for a tailspin.

    I foresee world heading back to GOLD Standard that was abolished almost 4 decades ago by greedy inflation hungry politicians, whose price is being paid by innocent civilians the world over.
    CommentQuote
  • That is historical. Looking at future ... ???

    Originally Posted by bhuvang
    Hi wiseman,

    no offence, but this is fact from my organization.

    I'm working in India Captive Center of a UK Based Mutual Fund House. Our India billing rates are 20 GBP/hr. Whereas UK rates 100 GBP/hr. Both these rates are for permanent employees and not contractors, that are usually paid pretty hefty rates.



    Bhuvan,

    I have no problem with the data as it must be accurate.

    There are some assumptions that are under threat going forward.

    1. GBP 100 is a huge number. This was rates in the "old" economy (circa 2007) and was sustainable the way all of us know - too much debt.

    2. What kind of work do you do?

    As far as BPO is concerned, 5 years back they said even Voice will not leave India. Its in deep doo-doo today with most new voice going elsewhere cheaper.

    As far as IT s/w is concerned we are saying the same thing today. My suspicion is that within the next 2-3 years the oncoming downswing worldwide will probably see the 100 come down sharply due to unemployment in UK itself. The 20 will get hammered down due to competition from cheaper locations elsewhere (Eastern Europe, Russia have very strong IT capability and they are starting to go hungry; China in the medium term will be English savvy and will be a serious threat in the medium term).

    So, I agree with you that the immediate threat is not there. But then, neither are you debts short term. Home loan is 20 years. Car loan is 5-7 years. And the added assumptions is that salaries will go UP to cater to rising expenses not only due to inflation but also additions to family - the usual increase in committed expenses and resultant decrease in free surplus.

    I think we are probably seeing the peak of salaries today for some time to come. If you have factored for enough debt cover under current circumstances, you may be okay. Any aggressive debt levels and there are multiple risks.

    Have you figured out what are you company Gross and Net margins? Should be quite easy to get a ballpark figure!

    Figure out Gross Revenues. Then do a headcount and figure out weighted average salary bill. Use a multiplier (2 to 2.5?) to get operating expenses. I assume you are debt-free so no interest outflow.

    One important factors is to include bench (you should get a fair idea of average bench ratio across the year to total workforce). Add salaries and operating expenses for them without including revenues. If you can depreciation and tax numbers, great.

    These should give you a good idea of PAT. I would be surprised if you see a number beyond the 15%-25% range. Try it!

    cheers
    CommentQuote
  • Originally Posted by bhuvang
    Hi wiseman,

    no offence, but this is fact from my organization.

    I'm working in India Captive Center of a UK Based Mutual Fund House. Our India billing rates are 20 GBP/hr. Whereas UK rates 100 GBP/hr. Both these rates are for permanent employees and not contractors, that are usually paid pretty hefty rates.

    My company has 3 offshore centers globally - one in Tunisia to serve French speaking clients (like France, Germany), 2nd in China to serve Far-East clients in China, Taiwan, Japan, and Korea. And 3rd in India to serve rest (Indians, English speaking Europeans). However, important thing to note is that both Tunisia and Chinese centers are not involved in any IT work. But rather backoffice customer support (like regarding sales, accounting, marketing, finance etc.) tasks.

    Important thing is that China and Tunisia centers have been opened in last 3 years only. So the way i make it out - low skilled BPO jobs may move to Far-East and African nations, but IT jobs like designing, development, and, testing, consulting, engineering etc. are going to stay here for long.

    And my hunch for this is that these kind of jobs don't require just English speaking, but high degree of analytical and brainstorming skills. And that comes in us due to our education system - with primary focus on Mathematics and Physics (for Science grads).

    If anyone gets any chance, Compare the mathematical and analytical skills of Indians/Chinese/Americans/British. I believe that Maths and Physics form the foundation of any knowledge based economy. So till we keep sharpening these two skills in our children, we need not worry about knowledge based jobs like IT.


    Hi

    In general in USA right now, I am seeing lot of MS in Computer Science getting jobs. The off shores rates based on my understanding are $30 to $40 per hour. Makes approximately $80,000 a year.

    Now in USA one can hire this MS's at $55,000 to $65,000 per annum. Add HR and Social Security + Medicare comes out to approximately another 25%. So all in all $80,000.

    I have seen atleast in NYC area lot of my friends getting jobs. So at this rate on shore is becominga cheaper destination.

    I am sure on onshore the quality will be better than India as that person has also spent two years in US schoool. So atleast writing skills and communication skills are expected to be better.

    Amit
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  • Originally Posted by amitshah
    Hi

    In general in USA right now, I am seeing lot of MS in Computer Science getting jobs. The off shores rates based on my understanding are $30 to $40 per hour. Makes approximately $80,000 a year.

    Now in USA one can hire this MS's at $55,000 to $65,000 per annum. Add HR and Social Security + Medicare comes out to approximately another 25%. So all in all $80,000.

    Amit


    Your understanding is wrong - offshore billing rates hover between $20 - $25 for bigger Indian IT companies. Its even less for smaller companies, I have personally seen a small 50 people company working at $9/hour for a US client.

    Not only now, you could always hire MS guys in US for 55-65k - I have worked directly with US customers for about 12 years now, worked in US for 8+ years, so know a thing or two. In addition to cost savings, there are other advantages that companies get. Outsourced project, most times, DO get completed ontime. From what I have seen, a US employee will leave his desk at 4.30 pm sharp, else his/her dog might miss a walk!! Most Indian employees will even miss a doctor's appointment and get his work done. Sad but true, that is how we work and employers love it. That is one aspect. Other is there is a big deficit of qualified IT guys there - most people there hardly complete school. College is very expensive in US and over half of MS holders are probably Asians :) I would rather hire the same desi without an MS from India at fraction of the cost than one who went there for an MS, don't believe those few extra years will change him/her much! Just my opinion.
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