Re : Builders & Real Estate Bulls Theory Proved Wrong

[rembrants]

Thanks for preaching me, but I have weathered severe layoffs earlier and know how to sharpen the skills. People are not laid off just due to lack of skills. I have seen even the most skilled ones going out and not finding the right opportunity for months.

Focussing on RE alone ? Dude, this is iref and we are here to discuss about RE!

Layoffs is going to be a big dent to realtors. RE is already unaffordable to many and people are becoming cautious due to uncertainty in jobs.

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Last time when we had massive layoffs by IT companies, it was 2009. The builders also got scared and reduced the prices. what happened then? people scrambled to buy properties. the sales volumes were at new records and it gave way to the steepest rise in RE prices followed by probably the best 2 years for RE!

If layoffs happen again, the builders this time will not reduce prices. They are adamant. Even if they do, there are many many people waiting on the sidelines to grab a good deal.

[wiseman]

General reply

Last time when we had massive layoffs by IT companies, it was 2009. The builders also got scared and reduced the prices. what happened then? people scrambled to buy properties. the sales volumes were at new records and it gave way to the steepest rise in RE prices followed by probably the best 2 years for RE!

If layoffs happen again, the builders this time will not reduce prices. They are adamant. Even if they do, there are many many people waiting on the sidelines to grab a good deal.

First of all there is a clear connection between job levels (or employment levels which includes wage levels) and RE prices. Simply put, wage levels indicate loan amounts that can be taken and job availability provides the confidence for people to take loans.

RE is targeted of 2 reasons. Firstly this is an RE forum and second, RE is widely regarded as in a bubble of some sort in terms of unaffordability.

Coming to 2009 and job scare, we must not forget that, but for loan rollover as well as Stimulus by Govt on a large scale the RE bubble was extended and blown bigger. This led to the scare being cut short, while the real problem was merely pushed down the line.

This time around the Govt is much weaker, banks are much deeper in distress, the RBI has clearly mandated that any re-structuring of loans automatically converts them to NPA on bank books and the economy is much weaker with no sight of any turnaround in any economy in the world, indicating that this situation should continue for some time to come and could even turn worse.

The sectors closest to RE in terms of amount of money spent (via cash and loans) like Auto and Consumer Durables are already several months in recession (latest month's CD IIP number was terrible). There is talk of imminent job losses in both these sectors, meaning it has already started and well on its way.

There will of course be a time lag between job/salary losses becoming widespread and its impact in RE. This is because prices being higher than purchase prices in the last 2-3 years there will be a perceived notional profit cushion in the minds of even distressed owners (on loan) and hope that this job loss scare will be hort-lived like in 2009.

I doubt Govt is in any position to come up with another stimulus like in 2009 (else deficits will soar, ratings will plunge, capital inflow will collapse and we will see a much worse situation). I suspect, this time job losses will be here to stay as the economic engine has stopped and economy is drifting with no catalyst to re-start the engine.

It will take a little time for this to tell on RE volumes and prices in that order.

cheers

[realacres]

Last time when we had massive layoffs by IT companies, it was 2009. The builders also got scared and reduced the prices. what happened then? people scrambled to buy properties. the sales volumes were at new records and it gave way to the steepest rise in RE prices followed by probably the best 2 years for RE!

If layoffs happen again, the builders this time will not reduce prices. They are adamant. Even if they do, there are many many people waiting on the sidelines to grab a good deal.

First, I completely agree with wiseman. The real probs were not sorted out at first place. It was just that money was printed & artificial stimulus given to sustain.

rembrants,

You need to see 2009 from 2 angles :-

> Massive job cuts, economic slowdown etc. &

> The stimulus which was given by Govt worldwide, in US, Fed was busy printing more & more $$, while in India, pressure was put to cut interest rates & allow cos to roll-over their loans so that they are not declared NPAs.

If roll-over of loans had not taken place, some of the top RE players, including DLF would have been bankrupt. Also, with the boost from housing finance banks like fixed low interest for first 3 yrs (remember, SBI, HDFC etc. were first to come), it made buyers jump thinking economic issue will get resolved by the time lower interest rate benefits get over i.e. by mid-2012.

Now here were are in 2013, where RBI has only one policy, to cut down inflation, no matter at what cost, cut down CAD (which wasn't the case in 2009), roll-over of loans has been stopped, RE declared high risk asset, & RBI few weeks back (link already posted) instructed to keep aside more money for every rupee given as loan, it was straight hike of 100%, which means banks will be left with less money to give out as loans.

Man, the banks borrowing costs too has gone up & it is due to this that despite few cuts in interest rates by RBI, the benefit has not been passed to customer as for banks they now require more reserves.

And if you see the amount in NPAs, it is way high today than what it was in 2009. Just by looking at builders cost sheet isn't going to be of much help. Remember, home loan is long term, not short term. When people aren't buying cars, how on earth can bulls claim they will buy already overpriced houses ??

With the passage of new immigration bill in US, things are going to get even worse for IT as they will be affecting their bottom line. And with Pune, matters is even worse, coz apart from financial issues, even the infra continues to crumble & all the roads which were DP back then, still are DP.

It seems RE bulls think that people have no other expense than home loan EMI, & people have no other goals but just to own some pigeon hole with cheapo builder in place where roads, PMC water is something great to talk about.

[Venkytalks]

Do Indian people suddenly become productive with a work permit in their passport?

No. They are routinely paid less because less productive.

Developed country everyone including second generation indians work harder and better.

I have observed their vastly better productivity first hand. I also had to scramble to meet their increased expectations.

Best in india is average in developed country.

We are a backward nation for good reason

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[sidcanada]

As we say there is a clear relationship between job numbers and real estate I beleive it again partially rides on speculation. Even a strong job market see people moving around as there are more job opportunities. I hope they dont buy an apartment whereever they move. It is the rental market that tells you the real support for RE prices. If a 60 Lac property is fetching 15000 INR rent that is 1/3 of the inflation rate. (negative return).

[RP Pune]

As we say there is a clear relationship between job numbers and real estate I beleive it again partially rides on speculation. Even a strong job market see people moving around as there are more job opportunities. I hope they dont buy an apartment whereever they move. It is the rental market that tells you the real support for RE prices. If a 60 Lac property is fetching 15000 INR rent that is 1/3 of the inflation rate. (negative return).

sidcanada,

Your chances of buying a property are inversely proportional to the time you spend on this forum.

[RP Pune]

I want to bring up my example in reference to the point raised by some people here - save the EMI worth of money to buy for end use in future. Honestly, I don't think it works.

Your wishes just expand themselves according to the size of your pocket. Be it anything.

My wife is after me to plan a trip to Italy this year, and I am trying to convince her that we go somewhere near and within the UK - I just dont have the money. After-all I am a bit squeezed after buying the flat earlier n the year.

We went to France, Switzerland, Belgium, Scotland, netherlands and Spain in last 3 years, and I think it was just a bit too much spending on holidays - based on our financial condition, and that money could have been better spent - into buying our first flat. Not just this, some of the other expenses like very costly winter-wears, buying too many gadgets is something I could have avoided (for better) had I bought the flat earlier. I had let go one deal in Baner in late 2010 that was just 3700 psf (baad me dekhenge).

We were eating out thrice a week earlier, and now we have cut down that spending by quite a bit - reduction by approx 15k rs/month. We had mostly been lazy earlier not cooking anything, but now prepare food at home most days, and I find this life style much better. The daily household chores also give some relief to the neck pain I developed because of too much time on internet.

I could sponsor my parents trip only to UK and Dubai - because of limited funds...would have liked them to visit some parts of Europe too, but I guess that's okay. Costly locations doesn't always mean quality time. I enjoyed my trip to Kerela and Goa much more than Scotland or Belgium. All within few months of each other.

So, folks, the point I am trying to make is you need to strike the right balance. If you dont own a house, buy asap as 'save wisely' could only work for very very short timeframe. When you do buy, don't be overcommitted. You still need money for other things.

[Krazy Yuppie]

sidcanada,

Your chances of buying a property are inversely proportional to the time you spend on this forum.

That means too much information leads to indecision

[Ninja_Chacha]

Another perpective!!!

RP_Pune,

let me try to give you another perspective... Since any decent flat in any decent area say pimple saudagar, is upward of 60 lacs now... if you have procured the down-payment of say, 12 lacs with your own efforts ( not from parents savings or from in-laws, two of the fastest and smartest way to buy RE and become preacher).. you still have to take a loan of 48 lacs...still this is a humongous loan( humongous to us, those who are working in India only)... This can still be repaid with some really smart financial planning...but still it is a very tough decision to take...

Also not all jobs and sector offers long term assignments outside India...

So they take the maximum possible amount they can save from their salary to build a corpus for future buy...but the RE prices are beating them....what should be done, if not this?

[sidcanada]

That means too much information leads to indecision

Does that mean Sunny Deol's dialogue ' kabhi kabhi jiyada soch iraadon ko khokhla kar deti hai'
'means too much dilligence could lead to losing courage'
I hope Sunny's dialogue works for RE!