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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

    Originally posted by realacres View Post
    First of all, I don't make news, I only share the news.
    To post positive news, there was a member paaap & compu. Don't know where they are now, seems they too aren't getting bullish news !!

    When you say about positive news, it depends upon the context of it.
    Eg. India became polio free - fantastic positive news, but how will it affect RE ??

    My posts here relate mostly to economy which in turn is related to RE. Now as economy is in downturn, with GDP under 5%, from where can I get news which will say that India's GDP growth was 11% ??



    The following is to you & also wiseman :-

    An optimist is one who sees half glass full,
    A pessimist is one who sees half glass empty,
    But a realist is the one who puts 60 ml whisky in the glass & says cheers.

    Now since I am not pappu, I can't make a statement like optimism & pessimism is a state of mind.
    Btw Real I'm not saying you have become an optimist. Only that your positive outlook on Modi and his plans seemed to be in complete contrast to your normal sharing of news!

    I too am of the view that so far we have only seen Rhetoric. Obviously the first 6 months will tell us how much of that will translate into reform and returns to mango people.

    Till then we tread cautiously.

    cheers

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by herohiralal View Post
      You are putting a very small limit on the term quality. Here is an example of quality. In 2005 a balcony fell in Goel Ganga's project.

      Now how much would the prospective tenants pay for a flat without a balcony? So quality is not just hygiene. For a high ticket object like RE quality is everything. Look at some of the projects in PS. Full of cracks and wont fetch true value in a resale transaction.

      Here is another quite sad example.
      Ravi Karandeekar's Pune Real Estate Market News Blog: Booking a flat means putting your life in danger


      We dont know how many lower quality houses were built in south mumbai in 1890s. Today you only see the ones that were built with proper design and with good quality material. Rest of the poorly constructed houses must have turned to dust. Every monsoon we hear about old building collapsing in Mumbai but havent seen those good quality south mumbai building collapse
      This means India has poor building codes and regulations. Poor quality means the local dudhwallah adding water to milk. Poor quality does not mean that he can add a chemical to milk which leads to loss of lives or permanent damage to humans.

      The Case-Shiller Index which is an US based index can safely assume basic quality in all houses as the US building codes and regulations are pretty strong.

      You cannot compare the Case-Shiller index which is an US based index with the poor quality construction in India to prove your point. This man deserves a lot of credit. He predicted the US crash back in 2003-2005!!!
      ...Thoda Aasman

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by ykmadaan View Post
        I agree that many of Realacres posts are very helpful and oriented towards highlighting the risks of investing in RE without checking all facts and understanding pitfalls but for several months now, his "news" posts have been surrounded with pessimism. His latest one was "Only 18% tier 2 B-school grads landed job offers this year" - what does this have to do with RE?

        There were so many +ive news on high % of campus placements and increased pay packages on Economic Times and other financial websites in recent months... those are not mentioned by Realacres. He just chooses to focus on negativity... very difficult to understand his motive.

        Whatever we all post here does not have any impact on RE transaction related decisions but those who think they can try to influence others by being always -ive or +ive are not being fair... at least that's my assessment.
        Its called confirmation bias and happens to all of us...
        Confirmation bias (also called confirmatory bias or myside bias) is the tendency of people to favor information that confirms their beliefs or hypotheses.[Note 1][1] People display this bias when they gather or remember information selectively, or when they interpret it in a biased way. The effect is stronger for emotionally charged issues and for deeply entrenched beliefs. People also tend to interpret ambiguous evidence as supporting their existing position
        So its best to use data and analytical techniques to confirm if the data support your hypotheses. Now even in data collection and transformation, there can be many more biases like selection bias, sampling errors, so on and so forth. So essentially anybody can prove anything!!

        What I find surprising is that people go to extreme lengths to defend their positions. I mean people claiming on this forum that "huh....Nobel prize is not a big deal" or "uhh...that index is really useless" just to prove great minds like Robert Shiller wrong. The same goes for the bears as well.

        My personal analysis which obviously include all my biases tell me that RE is really expensive in India and there is a good chance that the bubble may burst or prices/transcations may stagnate for the next 10 years or so.
        ...Thoda Aasman

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by ThodiSiZamin View Post
          What I find surprising is that people go to extreme lengths to defend their positions. I mean people claiming on this forum that "huh....Nobel prize is not a big deal" or "uhh...that index is really useless" just to prove great minds like Robert Shiller wrong. The same goes for the bears as well.
          A rickshaw is very useful but if u use to run an F1 race then its not the rickshaw's fault. Its the fault of the person who is using the wrong tool. Similarly using an index just cause its popular and provides an useful indicator of the US housing market to compare return of RE is a little weird.

          Its like using the stock price of a stock to calculate the returns. You will miss out from including all the dividends from your calculation.

          And on Nobel Price. Read a little more about it and how its given. A person who writes about confirmation bias should know better

          Here is one link on Nobel Prize - A Nobel Prize for Idiots, Signifying Only Bias - Bloomberg

          Nobel Prize for Peace was given to Obama who has shown zero leadership in tackling terrorism in africa, syria and for restarting the cold war.

          Nobel Prize was given to the EU who presided over the worst recession Europe has seen since the great depression and lead to rise in extreme right and extreme left parties. We should not just blindly follow someone or an organisation.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            @Hero - "Case Schiller uses a weighted repeat sales methodology which does include improvement done to home like renovating the kitchen but does not consider rise in land value."Of course land prices are considered. The index is of home prices, not of building prices as you claim. That (if it existed ) would probably be called a construction cost index. I quote from Wikipedia page on the index - 'Contrary to popular belief, there has been no continuous uptrend in home prices in the US and the home prices show a strong tendency to return to their 1890 level in real terms. Moreover, he illustrates how the pattern of changes in home prices bear no relation to changes in construction costs, interest rates or population'



            "Its like using the stock price of a stock to calculate the returns. You will miss out from including all the dividends from your calculation."
            If you are staying in the house, then where are the dividends? Perhaps you mean imputed rent. In that case, one should also factor in the maintenance costs, taxes, opportunity costs etc, etc.



            All the index says is that over the long term US home prices are flat after adjusting for inflation. Where is the confusion here? Are you questioning his data or methodology then ?



            As the wiki page says - "
            Shiller notes that there is a strong perception across the globe that home prices are continuously increasing, and that this kind of sentiment and paradigm may be fueling bubbles in real estate markets. He points to some psychological heuristics that may be responsible for creating this perception. He says that since homes are relatively infrequent purchases, people tend to remember the purchase price of a home from long ago and are surprised at the difference between then and now"


            IMHO, most bulls on this thread have not seen a real RE correction in India. The last one was way back in 1997. Old enough to be forgotten and replaced by the myth that prices are a one way street here.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              ""I agree that many of Realacres posts are very helpful and oriented towards highlighting the risks of investing in RE without checking all facts and understanding pitfalls but for several months now, his "news" posts have been surrounded with pessimism. His latest one was "Only 18% tier 2 B-school grads landed job offers this year" - what does this have to do with RE?"
              My reply is not about Realacres.
              The gentleman in question has immense knowledge and is intelligent in analysis of facts,figures.He has contributed well for the investors/buyers in the forum..
              My post is on the tendency to invest without knowing the risks and thinking all is well and will continue to be well.
              Investment in RE is not a instant passport to wealth.
              News about job losses,lesser job opportunities means that while jumping into RE,you need to know what will happen if there is a layoff.
              It is warning to think and make strategic back up plans.
              I know one of my friends who invested while working and after six months lost the job and was struggling to meet his financial obligations of servicing the loan.
              A very balanced and cautious outlook is essential to invest huge amounts of funds into RE.
              And we need all type of people-pessimists,optimists and finally the sensible people.
              One should go by documents for legality.
              One should have a fool proof financial plan to back up his investment and an exit route in case something happens.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by southsea View Post
                @Hero - "Case Schiller uses a weighted repeat sales methodology which does include improvement done to home like renovating the kitchen but does not consider rise in land value."Of course land prices are considered. The index is of home prices, not of building prices as you claim. That (if it existed ) would probably be called a construction cost index. I quote from Wikipedia page on the index - 'Contrary to popular belief, there has been no continuous uptrend in home prices in the US and the home prices show a strong tendency to return to their 1890 level in real terms. Moreover, he illustrates how the pattern of changes in home prices bear no relation to changes in construction costs, interest rates or population'
                Cause Case-Schiller assume a standard quality house and excludes 60% of the US population or only include 20 MSA (Metropolitan statistical area) and considers justs single family homes.

                40% of the US population lives in Single Family Homes - National Multifamily Housing Council

                Case-Schiller only considers 20 MSA. There are 184 such MSA as per US census (search for Table 20. Large Metropolitan Statistical Areas--Population on he US census site http://2010.census.gov/2010census/data/
                )

                Case-Schiller excludes areas like
                1. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
                2. Houston-Sugar Land-Baytown, TX
                3. Riverside-San Bernardino-Ontario, CA
                4. Providence-New Bedford-Fall River, RI-MA
                5. Sacramento--Arden-Arcade--Roseville, CA
                6. Virginia Beach-Norfolk-Newport News, VA-NC
                7. Milwaukee-Waukesha-West Allis, WI
                8. San Antonio-New Braunfels, TX
                9. Columbus, OH


                Or it just considers MSAs with an population of 104.5 million whereas the 184 MSAs cover a population of 231.46 million. So Case-Schiller considers around 45% of the population covered by the MPAs and out of that it considers less than 40% of the of the residents.

                Many of the MSAs that Case-Schiller considers have a very high % of apartments - NYC, SFO, LA, DC, Seattle, Boston - National Multifamily Housing Council

                So you are really looking at an index that represent around just about 20% of the population covered in the 184 MSAs.


                "Its like using the stock price of a stock to calculate the returns. You will miss out from including all the dividends from your calculation."
                If you are staying in the house, then where are the dividends? Perhaps you mean imputed rent. In that case, one should also factor in the maintenance costs, taxes, opportunity costs etc, etc.
                No I meant that just looking at the index does not help a person calculate the true return. In case of Case-Schiller a investor would find very little use of it as it does not cover town houses or apartments - the category which is mostly rented out. So whats the point in looking at such an index?



                All the index says is that over the long term US home prices are flat after adjusting for inflation. Where is the confusion here? Are you questioning his data or methodology then ?
                Sir its like saying returns from S&P are not that great and hence one should not invest in US stocks. But who is going to break the news to the poor investors that the S&P does not include stocks like Apple and Tesla?

                When Case-Schiller only covers around 20% of the US RE market then how can we use it to judge US RE returns?


                As the wiki page says - "
                Shiller notes that there is a strong perception across the globe that home prices are continuously increasing, and that this kind of sentiment and paradigm may be fueling bubbles in real estate markets. He points to some psychological heuristics that may be responsible for creating this perception. He says that since homes are relatively infrequent purchases, people tend to remember the purchase price of a home from long ago and are surprised at the difference between then and now"
                This guy should visit places like San Jose and India. Home prices do not always increase but when there is a big boost to the economy then RE prices do rise faster than the economy. Check out San Jose and other CA city prices or prices in Houston or Dallas.


                IMHO, most bulls on this thread have not seen a real RE correction in India. The last one was way back in 1997. Old enough to be forgotten and replaced by the myth that prices are a one way street here.
                On dont get me wrong. Indian RE will burst and it will create one big mess but I wont reply on Case-Schiller to tell me that. I can see it on the ground every single day. The bubble may have got a new life due to the recent elections but lets not kid ourselves that Indian RE is not going to burst. It wont be something to laugh about
                Last edited by herohiralal; May 20 2014, 08:30 AM.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  "Even in Mumbai you have places like greater Mumbai where prices are reasonable. Not everyone stay in South Mumbai."
                  Hiralal bhai what reasonable prices are you talking about? Kalyan a 2 BHK will cost you 80 lacs. Same case with panvel in no mans land the cost is 40-50 lakhs. 20 kms away from station. Now do you call this reasonable price? In Navi Mumbai it is 1 crore plus. Pata nahi hai to bola mat karo

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    @Hero - Any index will always give a broad average. And a 20 city index is still better than anecdotal individual information. For every SFO/SanJose/PaloAlto, one can find a Detroit (where homes are apparently selling for $5k!). Bulls here talk about buying in a 'good location'. In the 1980s Detroit was the prosperous symbol of American manufacturing might. It too would have been a 'good location' then.

                    As in stock markets, the fallacy is in thinking that one can beat the averages. Very few can. Even Warren Buffet says dont try to beat the index. Just buy and hold it and you will do better than even professional investors.

                    I would say its the same story in housing. Over a long term, the average person will not beat the market. He will get what history suggests the average person gets -- a small positive return net of inflation. This btw is not so bad. Preserving wealth itself is a big achievement. Most people do not realise how hard that is.

                    For another exception of home prices being decoupled from GDP, look to Germany over the last 20 or so years.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by vhaldavnekar View Post
                      "Even in Mumbai you have places like greater Mumbai where prices are reasonable. Not everyone stay in South Mumbai."
                      Hiralal bhai what reasonable prices are you talking about? Kalyan a 2 BHK will cost you 80 lacs. Same case with panvel in no mans land the cost is 40-50 lakhs. 20 kms away from station. Now do you call this reasonable price? In Navi Mumbai it is 1 crore plus. Pata nahi hai to bola mat karo
                      Which age are u living in sir? 40-50 lakhs is nothing in this market. You need to look at threads on this forum where 3 BHK in Hinjewadi, Pune is quoted at 1.2 crores. Forget station, bears on that forum call that place a forest.

                      Trying getting a flat for 40-50 lakhs in Pune. You will have to go to places like Pirangut or Talegoan or Manjiri.

                      Pata nahi to check kiya karo

                      Comment

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