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self defeating prophecy

Last updated: June 4 2010
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  • #11

    #11

    Re : self defeating prophecy

    Originally posted by echaos View Post
    hi friends just wanted to mix philosophy with econimics.

    in the current RE market context :
    Evrybody here are dying to buy a house , and are waiting for a correction, the moment correction happens all buyers will jump to buy their dream home, resulting in pricses to rise again. This seems to be self defeating prophecy.

    Other thing that can happen is that prices fall and people dont buy , fearing that market would crash , and when prices again start rising( say after 1 or 2 year) then people think of buying resulting in steep prices in very short time.

    so we have two scenarios here and in both cases buyers are at disadvantage....what say ???
    Let the prices crash totally first, then we will see who is at advantage and who is not, why you worry man?

    Comment

    • #12

      #12

      Re : self defeating prophecy

      Originally posted by echaos View Post
      Other thing that can happen is that prices fall and people dont buy , fearing that market would crash , and when prices again start rising( say after 1 or 2 year) then people think of buying resulting in steep prices in very short time.
      When prices fall, market sentiment is bearish, and it does not improve all of sudden. Its takes atleast ~1-2 yrs of "NO fall in prices period" for buyers to really gain confidence in the market

      So see there is no need to worry now.

      Comment

      • #13

        #13

        Re : self defeating prophecy

        Originally posted by echaos View Post
        hi friends just wanted to mix philosophy with econimics.

        in the current RE market context :
        Evrybody here are dying to buy a house , and are waiting for a correction, the moment correction happens all buyers will jump to buy their dream home, resulting in pricses to rise again. This seems to be self defeating prophecy.

        Other thing that can happen is that prices fall and people dont buy , fearing that market would crash , and when prices again start rising( say after 1 or 2 year) then people think of buying resulting in steep prices in very short time.

        so we have two scenarios here and in both cases buyers are at disadvantage....what say ???
        Lots of people have already given insightful answers, so I will just add this:

        The point is not about market being bullish or bearish or whether market is in a bubble or a great depression.

        Ultimately, the point should be whether one considers the price to be "fair value" or not for the property that one is buying and the surrounding infrastructure that one is getting.

        This is a highly personal decision and analysis that everyone MUST do before even considering buying a house. All these terms that we are using such as demand, supply, bull, bear etc. are meaningless as we are talking about a buying decision that one makes maybe 1-2 times in one's lifetime, and hence, the timeframe to make this buying decision spans our entire lifetime.

        These terms are only relevant if we are engaging in trading activities or buying/selling something in timespans of hours, days, weeks, and at max. months. At best, an "investor" who is buying/selling his or her third house should think about this. For a person who is buying a first house, these terms are utterly meaningless.

        Unfortunately, in recent years, we have collectively become excessively greedy and excessively impatient. As a result, builders and marketers use this to their advantage.

        One more thing: Arriving at this "fair value" number should be done strictly on the merit of the property and the neighborhood and surrounding infrastructure. Making a purchase decision because we happen to find a house that is within our budget or EMI that we can afford is also WRONG. I can afford to buy 100kgs of tomatoes a month or maybe, a motorbike a month. However, I will make neither of these buying decisions. This is because neither of these decisions will be based simply on the fact that "I can afford it" or even because the tomatoes are on sale!

        I will make my purchasing decision IF and only IF:
        A: I really really need to buy this product
        B: I have thought this through, and I know exactly what I want
        C: I have done my research, and have thought about this, and I know how much it costs to manufacture, how much it is really worth, and hence, how much I should pay for it
        Last edited June 2 2010, 10:39 AM.

        Comment

        • #14

          #14

          Re : self defeating prophecy

          Originally posted by asliarun View Post
          Lots of people have already given insightful answers, so I will just add this:

          The point is not about market being bullish or bearish or whether market is in a bubble or a great depression.

          Ultimately, the point should be whether one considers the price to be "fair value" or not for the property that one is buying and the surrounding infrastructure that one is getting.

          This is a highly personal decision and analysis that everyone MUST do before even considering buying a house. All these terms that we are using such as demand, supply, bull, bear etc. are meaningless as we are talking about a buying decision that one makes maybe 1-2 times in one's lifetime, and hence, the timeframe to make this buying decision spans our entire lifetime.

          These terms are only relevant if we are engaging in trading activities or buying/selling something in timespans of hours, days, weeks, and at max. months. At best, an "investor" who is buying/selling his or her third house should think about this. For a person who is buying a first house, these terms are utterly meaningless.

          Unfortunately, in recent years, we have collectively become excessively greedy and excessively impatient. As a result, builders and marketers use this to their advantage.

          One more thing: Arriving at this "fair value" number should be done strictly on the merit of the property and the neighborhood and surrounding infrastructure. Making a purchase decision because we happen to find a house that is within our budget or EMI that we can afford is also WRONG. I can afford to buy 100kgs of tomatoes a month or maybe, a motorbike a month. However, I will make neither of these buying decisions. This is because neither of these decisions will be based simply on the fact that "I can afford it" or even because the tomatoes are on sale!

          I will make my purchasing decision IF and only IF:
          A: I really really need to buy this product
          B: I have thought this through, and I know exactly what I want
          C: I have done my research, and have thought about this, and I know how much it costs to manufacture, how much it is really worth, and hence, how much I should pay for it
          hi arun

          your point is valid but RE is only market in india where determination of fair value is next to impossible. there are no tradable / liquid instruments so that fair value is determined.
          so its very easy for buyer to get fooled.
          echaos

          Comment

          • #15

            #15

            Re : self defeating prophecy

            Lets take a case.

            Lets assume that an expensive rate is 3400 psf and a fair affordable rate is 2400 psf.

            At 3400 psf hardly any deals get done and the market tends to dry up slowly.

            The folks who had nearly made up their minds to buy at 3400, but couldn't since they didn't have funds are really low in number.

            The high price stagnates initially and then starts weakening. So the 3400 starts dropping to 3000 to 2800. Remember the affordable price is 2400.

            All the buyers who were priced out of the market due to 3400 rush in and clear the inventory at 3000 and 28/2900. This gives the builders a breather for some 10-12 months to hold on at 2900.

            The prices of 2900 starts stagnating further because its still higher than the fair price of 2400. The ones who could afford high prices, like, NRI's, businessmen and politicians kins have all bought out and are no longer in the market.

            From this point, the prices only drop till the point they become affordable. This is the standard cycle in RE.

            Comment

            • #16

              #16

              Re : self defeating prophecy

              Originally posted by harshalx View Post
              Lets take a case.

              Lets assume that an expensive rate is 3400 psf and a fair affordable rate is 2400 psf.

              At 3400 psf hardly any deals get done and the market tends to dry up slowly.

              The folks who had nearly made up their minds to buy at 3400, but couldn't since they didn't have funds are really low in number.

              The high price stagnates initially and then starts weakening. So the 3400 starts dropping to 3000 to 2800. Remember the affordable price is 2400.

              All the buyers who were priced out of the market due to 3400 rush in and clear the inventory at 3000 and 28/2900. This gives the builders a breather for some 10-12 months to hold on at 2900.

              The prices of 2900 starts stagnating further because its still higher than the fair price of 2400. The ones who could afford high prices, like, NRI's, businessmen and politicians kins have all bought out and are no longer in the market.

              From this point, the prices only drop till the point they become affordable. This is the standard cycle in RE.
              Ya Harshal .... And on this standard cycle there are some very "non standard" events linked.......

              This cycle have usually happened many times but never was linked with a World War where our country is involved too....

              Readers Don't jump .... try to understand the point ....

              the damage that is being done by this financial turmoil is so HUGE that
              it will involve lifestyle change, thinking change for West ....
              US superpower .... after this war ....maybe it won't stand there .....

              US officially 9.9% unemployment ... now today Europe ... 10% ....

              So all usual/default/book concepts don't hold.......

              its like trying to break a balloon perceiving that its a solid object ...
              press at one place other side between your fingers pops ....

              so one patchwork done ... other one breaks...
              this is destined to continue till several years .....

              and now suddenly India shining .... BRIC shining bcoz they have started to spend....
              soon they will be on US path .....

              Car sales .... home sales ..... all have happened at the cost of saving ....
              eating out the reserves .... reducing the flexibility ...
              so in more difficult times the rigid once will be the first to break

              welcome to Global village. ...
              Last edited June 2 2010, 10:35 PM.

              Comment

              • #17

                #17

                Re : self defeating prophecy

                Excuse me!

                I will excuse myself out of this argument!

                Yes, I bought land in Koramangala when it was 7 bucks a SFT and it is now more than 7000!

                But remember, in those days (1986), my salary was enough to provide me a saving to pay down in cash for the entire land, and I was only an executive with 2 years in the Industry!!!

                Today, unless you are one of the handful of senior ececutives with humongous pay, you cannot afford land in Bangalore.

                Merely goes to show how bubbly land and flats have become with rent ratios of 400:1.

                There is this apartment complex with a fantastic view of wooded Army land (the only land with trees in Bangalore soon will be army land!) which was sold at construction time at 3000/SFt and went to 6000/SFt. In the slump it went down to 4000/SFt and is now back to bubbly levels of 5800.

                I will wait for the 4000 or even lower, never mind how ong it takes, kanjoos that I am!!! And pay full down in cash!

                cheers

                Comment

                • #18

                  #18

                  Re : self defeating prophecy

                  Originally posted by wiseman View Post
                  I will excuse myself out of this argument!

                  Yes, I bought land in Koramangala when it was 7 bucks a SFT and it is now more than 7000!

                  But remember, in those days (1986), my salary was enough to provide me a saving to pay down in cash for the entire land, and I was only an executive with 2 years in the Industry!!!

                  Today, unless you are one of the handful of senior ececutives with humongous pay, you cannot afford land in Bangalore.

                  Merely goes to show how bubbly land and flats have become with rent ratios of 400:1.

                  There is this apartment complex with a fantastic view of wooded Army land (the only land with trees in Bangalore soon will be army land!) which was sold at construction time at 3000/SFt and went to 6000/SFt. In the slump it went down to 4000/SFt and is now back to bubbly levels of 5800.

                  I will wait for the 4000 or even lower, never mind how ong it takes, kanjoos that I am!!! And pay full down in cash!

                  cheers
                  hi wiseman
                  i dont have any idea how was kormangala 25 yrs ago. Even today in Pune you can buy same land 5 km away from from hinjewadi with your savings ( without loan) and after 25 yrs you can say i bought a land in hinjewadi with my savings as after 25 yrs hinjewadi will be priome location.

                  if even 25 yrs back kormangala was prime location then plz ignore my msg
                  echaos

                  Comment

                  • #19

                    #19

                    Re : self defeating prophecy

                    I read in another thread about plots and plotting shcemes around hinjewadi that most of the land is on lease. And there r chances that MIDC will aquire this land. Thats why lots of landowers are going in for plotting schemes and offload their land parcels. So those who want to invest in land, Beware at hinjewadi.

                    Originally posted by echaos View Post
                    hi wiseman
                    i dont have any idea how was kormangala 25 yrs ago. Even today in Pune you can buy same land 5 km away from from hinjewadi with your savings ( without loan) and after 25 yrs you can say i bought a land in hinjewadi with my savings as after 25 yrs hinjewadi will be priome location.

                    if even 25 yrs back kormangala was prime location then plz ignore my msg

                    Comment

                    • #20

                      #20

                      Re : self defeating prophecy

                      Originally posted by echaos View Post
                      hi wiseman
                      Even today in Pune you can buy same land 5 km away from from hinjewadi with your savings ( without loan) and after 25 yrs you can say i bought a land in hinjewadi with my savings as after 25 yrs hinjewadi will be priome location.
                      One big assumption you are making is is that Pune will continue to grow limitlessly and that too at this rate.

                      If what you say is true, Pune's population will have to probably quadruple (increase from about 6 million to 24 million). This would make Pune as big as Mumbai or Delhi is today, and this would mean that Pune would have to support and sustain the amount of business, trade, production, and number of jobs that currently exists in Mumbai.

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