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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    They take collateral

    Originally posted by puser View Post
    who is lending them hoping to get back their money along with interest 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!!!).

    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

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by puser View Post
      who is lending them hoping to get back their money along with interest 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.
      If you are happy, you are successful.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by patilbha View Post
        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.
        If you are happy, you are successful.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by wiseman View Post
          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.
          The knowledge of what to do in a Recession or Boom is more important than predicting a Recession or Boom.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by bhuvang View Post
            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.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              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
              If you are happy, you are successful.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by BlotJab View Post
                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.
                The knowledge of what to do in a Recession or Boom is more important than predicting a Recession or Boom.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by realacres View Post
                  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.
                  The knowledge of what to do in a Recession or Boom is more important than predicting a Recession or Boom.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    That is historical. Looking at future ... ???

                    Originally posted by bhuvang View Post
                    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
                    Last edited by wiseman; July 18 2011, 07:07 PM.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by bhuvang View Post
                      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

                      Comment

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