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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

    Do remember what happened last time the PE Funds and FIIs withdrew their money from our stock market, due to the retrospective tax laws and other restrictions on PE funds, the sensex fell heavily, it was not looooong ago.

    Originally posted by CAPT RAJESH View Post
    FII cumulative stock investment in 2012 reaches USD 125 bn - PTI

    With so much of money pouring into equities I’m surprised to see rupee struggling at 55.
    Something is wrong somewhere.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by wiseman View Post
      I agree with you. The 2 economies are at different stages of "development". While India is still having its growth pains , the US is fast heading for the stone age!

      Heading for stoneage ! it sneezes and everybody has migraine imagine the state of everyone else when it heads for the stoneage !

      You would have noticed that I was not comparing the two. I was pointing out to the fact that, India started by competing on wage arbitrage in the global market (not only IT but also in areas like Engineering Exports).

      This wage arbitrage is being squeezed by 2 factors. Too many Indians (many of them not upto international quality) being paid too much for shoddy work. Increasing number of rather good quality people all over the world becoming cheaper (and sometimes better) than us and taking away work that used to come to us by default.

      The danger is not only in deals falling through to competition from cheaper and equally good countries (we are losing voice BPO to the Philippines) but its what we don't see (deals where India is simply not considered) which used to come to us by default in the old days).

      You might also note that while exports account for around 20% of out GDP roughly, they account for a lot more of our disposable surplus. Specifically, its the IT crowd (especially, as you note, the crowd onsite) that saves up like crazy and puts it into RE here.

      Point I was trying to make is, it is dangerous to assume the 18, 24 and 30L jobs are going to continue for long in increasing numbers out here. These salary levels grew upon the outsourcing model India became famous for. While it grew, our capability to deliver at those elevated levels of salaries has not grown proportionately.

      Our large factory with cheap labor approach is based on 20th Century, large, expensive project model which is rapidly changing with the introduction of new methodologies, tools and processes which is cutting down project durations as well as product lifespans. That old model is becoming history (you might have noticed even many of our IT CEOs also taking this language, Phaneesh, Vineet, etc) slowly but surely and so will the kind of salaries to managers of our factories / bodyshops we have built so successfully.

      In the new model, we do not have the natural wage advantage we used to have and we have to unlearn the old stuff and re-learn the new, while the others don't have that baggage to deal with. Besides, we have to breakdown the old organizational structures and re-build new structures that is more suited for work with small, high-quality teams rapidly developing and delivering massively scalable products.

      While large IT companies continue to flog the old model (keeping that structure intact for now) as a cash cow, they are also throwing large sums of money trying to learn the new model (sometimes buying out companies that seemed to have succeeded here). Right now this does not seem to be yielding much as we don't seem to have the mojo to re-invent Indian IT yet (throwing money is not enough).

      In short ... rethink the belief that we will keep seeing 20, 30 and 60L jobs for the long term in absolute safety. The new model might also have such salary levels, but serious, long term weakness in global economies will lead to increasing levels of competition, putting a dent on cushy 30L jobs while increasing the stress levels to keep changing faster and faster (otherwise one becomes history very quickly and earning capacity drops precipitously).


      On another note, our IT industry will boom once again when we have the same kind of risk taking ability by the Venture Financing crowd and the ascendance of hands-on builders of product companies (please note that most of the highly successful product companies in the US and elsewhere were started by people who built those products themselves ... Hewlett and Packard, Page and Brin, Bezos, Gates, Jobs and Wozniak, etc, etc. WE also need a risk-taking population to try out new products as quickly as people in the West buy new stuff.

      Do know one country which provides and has environment for the above ?

      Going to be an interesting journey in the coming years.

      cheers
      The post is a litany of contradictions

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by fatichar View Post
        You and me are staring at a coin from opposite directions. Me saying that the coin has head is not a closed mind. You saying that the coin has tail is not a closed mind.
        Saying that "any sensible person will see only tail" is a closed mind.

        Can't clarify more.
        Ok Fine ; I am happy with my closed mind.

        Its good that the hype and hoopla of builder-underwriter-broker nexus has no impact on me.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by rainmain View Post
          The post is a litany of contradictions
          It would be better if you elaborate on some of the contradictions.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by amitjj View Post
            This is the most likely possibility, but only if the Congress party loses. The record from the 1990's shows that after the Congress party lost the 1996 general elections, the then developing bubble popped, and didn't resume building until after it returned to power in 2004.

            The reason for this is that in India the government controls the banks, and under the current dispensation, the banks will be asked to bail out projects (i.e. builders), instead of forcing distress sales of projects.
            I am also waiting for this government to go.
            Earlier busts were less severe because the leverage levels were low.

            Now cheap bank credit has spoiled everyone.
            The times are going to be be interesting.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Originally posted by sheeshu View Post
              Lot of indians in US live in cheap, unsafe places to save money and may be buy properties in india.
              depending on what part of US you are in , you could pay as much in rent as you would in mortage, if renting in a nice area.
              I'm not too well versed with the RE price points in different geographies in the US..I expect them to follow the same generic rule that the big cities like New York, Chicago etc would command a much higher rate than a small town like Chesapeake, VA or an even smaller Des Moines, IA..what I do know is that this friend / wife are based out of Mountainview, CA and pay about $1700 per month as rent. The question is not if they can afford the mortgage on a similar type of property but do they want to..considering the current US RE scenario..

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by wiseman View Post
                I agree with you. The 2 economies are at different stages of "development". While India is still having its growth pains , the US is fast heading for the stone age!

                You would have noticed that I was not comparing the two. I was pointing out to the fact that, India started by competing on wage arbitrage in the global market (not only IT but also in areas like Engineering Exports).

                This wage arbitrage is being squeezed by 2 factors. Too many Indians (many of them not upto international quality) being paid too much for shoddy work. Increasing number of rather good quality people all over the world becoming cheaper (and sometimes better) than us and taking away work that used to come to us by default.

                The danger is not only in deals falling through to competition from cheaper and equally good countries (we are losing voice BPO to the Philippines) but its what we don't see (deals where India is simply not considered) which used to come to us by default in the old days).

                You might also note that while exports account for around 20% of out GDP roughly, they account for a lot more of our disposable surplus. Specifically, its the IT crowd (especially, as you note, the crowd onsite) that saves up like crazy and puts it into RE here.

                Point I was trying to make is, it is dangerous to assume the 18, 24 and 30L jobs are going to continue for long in increasing numbers out here. These salary levels grew upon the outsourcing model India became famous for. While it grew, our capability to deliver at those elevated levels of salaries has not grown proportionately.

                Our large factory with cheap labor approach is based on 20th Century, large, expensive project model which is rapidly changing with the introduction of new methodologies, tools and processes which is cutting down project durations as well as product lifespans. That old model is becoming history (you might have noticed even many of our IT CEOs also taking this language, Phaneesh, Vineet, etc) slowly but surely and so will the kind of salaries to managers of our factories / bodyshops we have built so successfully.

                In the new model, we do not have the natural wage advantage we used to have and we have to unlearn the old stuff and re-learn the new, while the others don't have that baggage to deal with. Besides, we have to breakdown the old organizational structures and re-build new structures that is more suited for work with small, high-quality teams rapidly developing and delivering massively scalable products.

                While large IT companies continue to flog the old model (keeping that structure intact for now) as a cash cow, they are also throwing large sums of money trying to learn the new model (sometimes buying out companies that seemed to have succeeded here). Right now this does not seem to be yielding much as we don't seem to have the mojo to re-invent Indian IT yet (throwing money is not enough).

                In short ... rethink the belief that we will keep seeing 20, 30 and 60L jobs for the long term in absolute safety. The new model might also have such salary levels, but serious, long term weakness in global economies will lead to increasing levels of competition, putting a dent on cushy 30L jobs while increasing the stress levels to keep changing faster and faster (otherwise one becomes history very quickly and earning capacity drops precipitously).


                On another note, our IT industry will boom once again when we have the same kind of risk taking ability by the Venture Financing crowd and the ascendance of hands-on builders of product companies (please note that most of the highly successful product companies in the US and elsewhere were started by people who built those products themselves ... Hewlett and Packard, Page and Brin, Bezos, Gates, Jobs and Wozniak, etc, etc. WE also need a risk-taking population to try out new products as quickly as people in the West buy new stuff.

                Going to be an interesting journey in the coming years.

                cheers
                The "outsourcing" model evolving into a more value add based / outcome based model instead of the traditional time and material or fixed bid model is inevitable..this can be expected across industries and not just I.T. per say..

                By when this happens is anyone's guess..could be 5 years, 10 years or much more..does it make sense to keep sitting on the sidelines till then..or following the "make hay while the sun shines" adage by buying a house without over-leveraging yourself while you still can..Any delays in the scenario unfolding will only make it much more difficult to own an RE asset. Stocks / mutual funds would also see a drastic drop down when this scenario unfolds..so is it a wise choice to sit on the sidelines whilst waiting for the doomsday to arrive..

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Thats an enormous amount of money!

                  Originally posted by CAPT RAJESH View Post
                  FII cumulative stock investment in 2012 reaches USD 125 bn - PTI

                  With so much of money pouring into equities I’m surprised to see rupee struggling at 55.
                  Something is wrong somewhere.
                  $125 Billion must be a wrong number. If it is right, then our markets are floating on very thin air. My rule of thumb is, if 10 Billion leaves, we lose perhaps 2000-3000 in the Sensx (around 700-1000 on Nifty).

                  The entire world is on the verge of recession, already in it or in depression in pockets. The only thing keeping this thin veneer of anemic "growth" is the huge amount of money being pumped into banks, some of which is leaking into emerging countries like ours as hot money (not FDI, which gets locked in for a few years). In fact, with the slowdown in the economy, even FDI is losing its sheen with some of it getting sticky and generating losses. As you might have noticed in today's papers, IKEA arm-twisted our Govt into backing off with a mere 10k Crore investment plan and giving them a green signal on their terms. Shows how desperate our Govt is to get their hands on any money!

                  Maybe more money may come in, but 2 things may come into play to reverse the situation ...
                  1. Perception that the Western economies are stabilizing and "recovering".
                  2. 2008-type crisis returning in a much bigger format

                  Either of these will see at least partial encashment via equity sell-off and that could easily bring down our stock market by 2000 - 4000 points.

                  Our domestic DIIs have been smartly selling off into this rally and stacking the cash for markets to fall, wherein they would be called to get in and prevent a bigger fall. Profits for our DIIs (read LIC) is baked into this model of bailout market when it falls and book profits when enthusiasm of FIIs get irrational! ).

                  Keep watch in FII flows and bail out whenever you see increasing withdrawals or even inflows becoming a trickle. MArkets are bound to follow downwards when the pumping stops.

                  This is also seen in all markets worldwide now-a-days. This is the new reality.

                  Btw, if this is true, then the rupee is also being kept propped up. Withdrawal of $$$ in large quantities will also crash the rupee along with stock and commodity markets. What about RE?

                  cheers
                  Last edited by wiseman; December 27 2012, 12:55 PM.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Originally posted by wiseman View Post
                    This is also seen in all markets worldwide now-a-days. This is the new reality.

                    Btw, if this is true, then the rupee is also being kept propped up. Withdrawal of $$$ in large quantities will also crash the rupee along with stock and commodity markets. What about RE?

                    cheers
                    RE can never crash in India . If INR crashes all the NRIs will start buying. If INR appreciates, it will signify improvement in economy leading to higher RE prices! Indian RE is the only thing which can never crash and in this high time of uncertainty where fund managers are worried about even capital protection, RE is the asset class to be in. Ideally, RE should attract more FII money, but don't why it is actually not .

                    And look at the commentary from all experts in RE area including bankers .They are all talking about revival in RE in 2013!!! Sometimes this makes me think if this is due to vested interests.
                    Last edited by realpune; December 27 2012, 02:24 PM.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Going the extra mile ... literally!

                      Originally posted by AnkitS View Post
                      The "outsourcing" model evolving into a more value add based / outcome based model instead of the traditional time and material or fixed bid model is inevitable..this can be expected across industries and not just I.T. per say..

                      By when this happens is anyone's guess..could be 5 years, 10 years or much more..does it make sense to keep sitting on the sidelines till then..or following the "make hay while the sun shines" adage by buying a house without over-leveraging yourself while you still can..Any delays in the scenario unfolding will only make it much more difficult to own an RE asset. Stocks / mutual funds would also see a drastic drop down when this scenario unfolds..so is it a wise choice to sit on the sidelines whilst waiting for the doomsday to arrive..
                      You are right. One should not sit on one's hands ... unless, of course he has placed his/her bets on wisely selected options and is going to wait for the bets to mature!

                      I have also not advocated sitting on hands. Only, to bite what one can chew and find ways to bite more without getting chewed out by debt!

                      In my case, one of the things I'm doing is as follows ...

                      Thanks to an accidental purchase of 9 acres of land in the then distant outlying area of Mylapore in Chennai, bought for 10 paise psft (back in 1911 when one was living in the posh area of Broadway) due to a borrower's distress and inability to pay (note the timeless similarities of lender power and borrower distress), a small leftover portion in our hands is netting around 12k psft today. Jut pure luck!

                      Now, I'm trying to duplicate this luck by going the extra mile (60 kms from Bangalore along the route where factories and residential schools are being gradually built) and buying acres of (somewhat developed) land for only 37 psft! Buying at 10p, selling at 12k and rebuying at 37.

                      With the ability to hold for next 10, 20, 30 or even 100 years, can it go far wrong? Especially as I aim to use it as a farmhouse to getaway and also grow stuff organically for own use (just trying my luck at doing many odd things), this is dual use as well as possibly a super investment for the longer term for my kids. Since my work needs only a broadband connection (which we are making sure of) I can easily work in Bangalore or 60km out of it with clean air, minimum noise and green land as far as you can see.

                      Yes, as you said, people must find innovative methods to stretch the buying power of their savings and make it pay well in the longer term. Not just keep on getting into high debt situations without utilizing their own ingenuity to find the right kind of investments!

                      cheers

                      Comment

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