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Coming Property Crash

Last updated: May 5 2009
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  • #21

    #21

    Re : Coming Property Crash

    SP Tulsian of sptulsian.com sees real estate prices softening by about 30-40%. "Volumes have fallen. I don't think even 20% of CY07 volumes have been met. So, once players start releasing property into the market, prices cannot be held beyond a point. Maybe during Diwali or Dassera, which is around September or October, prices will correct further by about 15-20%. If they keep pace with the volumes that they have targeted, prices could soften by about 30-40%. Ultimately, the consensus is that there would be a fall."
    Either land or AIR and FOOD. Choice is yours.

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    • #22

      #22

      Re : Coming Property Crash

      Kick em where it hurts

      This is a very correct observation .. "We have a product.. We know what the price could be (or atleast have some idea) .. but.. where is the buyer??" .. builders have become greedy and developed a lot of charbi .. fuelled by speculators / PE investors and the general euphoria triggered by the rising (now falling) stock markets .. they have become blind towards the plight of their real customers ... have ditched the real people who make the 4 walls their home .. now its time for the real customers to give them a kick where it hurts ...

      The builders feel that there are a lot of people with crores of rupees lying around for investment .. one important fact they seem to be missing out is that these money bags aren't living on the streets .. they would already have their own homes .. why would they put the money in overpriceed property

      here is a story Suresh Krishna, chairman of Sundaram Fasteners, which is part of the TVS Group, tells about his father, T.S. Krishna.


      His father had told him this anecdote during the 1960s. The TVS Group, like other traders in Southern India, imported diesel engines during the 1940s. The
      engines were imported from London for about Rs. 1,100 ($220 at the prevailing exchange rate) and were sold in the local market at a 25% to 30% markup for about Rs. 1,400 ($280).

      But during the mid-1940s, supply was disrupted because of World War II, and this led to an extreme shortage of engines. Anyone who had an import license could easily sell the engines for Rs. 5,000 ($1,000) -- many customers were
      willing to pay such prices. At one level, you could call this market pricing since the demand-supply situation was so skewed. It was a seller's market. But, at another level, you could also view this as a defection of sorts because the sellers were exploiting the wartime shortage to force buyers to pay a higher price.

      Krishna decided that the TVS Group would not follow that approach. Despite the shortage and the prevailing high prices, he insisted on charging the normal markup of 25% and kept selling engines for Rs. 1,400 throughout the war. At that time, the local business community thought he was either naďve or downright daft for missing out on the opportunity to make as much money as possible.

      When the war ended, however, the traders who had profiteered from the shortage went out of business one after another; today no one remembers those companies. But the TVS Group survived, and it continues to be
      recognized as a valuable company.
      In today's terms, we might say that TVS had better corporate governance, and its strategy paid off because it delivered long-term shareholder value. Back in 1945, though, it was just one decent man trying to do the right thing for his customers. Krishna refused to defect just because the timing was
      against his customers. The consequence is that even today, TVS is regarded as a name to be trusted. If the company lists its shares for sale, people subscribe to them. If products carry the TVS brand, people buy them. Krishna probably did not stop to think about the "brand value" of his behavior; still, his
      actions helped build the TVS brand.



      Originally posted by chin2_2much View Post
      Hi Friends...

      I guess the root cause of the problem lies in the fact that "We have a product.. We know what the price could be (or atleast have some idea) .. but.. where is the buyer??

      The "property crash" being discussed in the topic, I believe has already started to come and infact is being witnessed since last 1 - 1.5 yrs.

      Fixed commercial rate of returns or the renowned term assured return, has now come down to 8 - 9 %. The statement is a phrase until we add that the norm only 1 - 1.5 yrs back was somewhere around 15 - 16%. The fact holds good for both retail and office complexes. The reason is simple... We have a product... we have its price.. but we do not have takers.

      The same stands good for Residential sector as well. My CEO in one of award ceremony quoted "It is very easy to construct houses.. but very difficult to make them homes". Empty towers, waiting for residents is a perfect example for this. The reason is the same.


      Residential will still find its way out of the cyclone but my real worries are for the commercial ship. Despite of retail growing at blah blah % and demand for office increasing like increase in gasoline prices, I feel developers will find tough times ahead.

      But still I feel that one should not wait to buy / invest in the property. I follow and suggest a simple rule to my investors, “whenever you think you can afford a particular property, go ahead”, but of course that doesn’t mean that one should not do a proper scrutiny of the market and available options. A carefully made investment will always fetch good results.

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      • #23

        #23

        Re : Coming Property Crash

        way 2 go

        gr8 answer

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        • #24

          #24

          Re : Coming Property Crash

          Folks .. talk about 20-30 % correction is kind of moot .. over the last year or so .. each time there has ben talk abt a correction .. builders have gone ahead and increased the priced incrementally .. hence the real 20-30% correction point is actually near half of what the current prices are ..
          Now many will say that is unreasonable blah blah etc .. however as customers we need to come together and choke the prices else we won't get anywhere and end up taking huge home loans andl liabilities and the bulders will still be laughing all the way to the bank


          Originally posted by arin_12 View Post
          SP Tulsian of sptulsian.com sees real estate prices softening by about 30-40%. "Volumes have fallen. I don't think even 20% of CY07 volumes have been met. So, once players start releasing property into the market, prices cannot be held beyond a point. Maybe during Diwali or Dassera, which is around September or October, prices will correct further by about 15-20%. If they keep pace with the volumes that they have targeted, prices could soften by about 30-40%. Ultimately, the consensus is that there would be a fall."

          Comment

          • #25

            #25

            Re : Coming Property Crash

            Hello Everyone

            Hello Friends, i read MR CHIN2 2Much's thread on this discussion, and must add that it was a really impressive addition to the thread, even The additions of Rubin and Pinnacle were good as well, I am sorry to add but Mr PRAT speaks and shows off like typical Delhi guy, so i excuse him, no offense man, i am sure u did'nt mean to offend anyone, i don't either.

            I have been waiting to buy a house in the Delhi, and was prefering to stay in Dwarka as i had many friends staying there, and used to commute a lot towards that part of Delhi, but to my surprise i find most of the socities empty or, with buyers doubtful about the legality of the societies made up in Dwarka, i don,t know much about properties, but atleast i understand the simple Maths of Higher EMI's lead to fewer buyers, and with those fewer buyers, the prices of the property should not stay where they are (i would say above the roof), this is a best way to discuss, as if one goes to buy a property in any locality, there are few novice property delaers, who always try to misguide public by saying rates that are appreciating every month by atleast a couple of lakhs irrespective of the inflation status, rising cost of living etc, so one wonders if there is actually a way to find out if these rates actually exist, are there people buying and selling at those rates, or is it just a word that travels across the mouth of many speakers, Please people your feedbacks are very valuable, and are helpful for ppl like us in deciding our course of action with our hard earned money, regards to all,
            PAWAN

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            • #26

              #26

              Re : Coming Property Crash

              Todays Economic Times, on front page, has reported that real estate trascations are down by 90% and price 15-20%.

              I have been searching property in Noida/Greater Noida for quite some time now. I feel, at current level I do not get my money's worth. So I am holding my decision to purchase.

              During this period I have found that most completed projects have 10-15% occupancy. It has been like this for 6-9 months, if not for 1-year. In very few completed project, I found 20-30% occupancy.

              I visited a project by one of the big name in real estate industry 6-7 months ago. This project was already delayed for an year. I was told that they have begin giving possession now. Searching through property sites, I found that, they are yet to give possession. Also, in resale, many were selling their apartment, for 20-30% less than builders advertised price.

              I strongly feel that Indian real estate prices are much much over priced and does not offer good value of any body's hard earned money.

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              • #27

                #27

                Re : Coming Property Crash

                Hello all. No offence to anyone intended in this post. Apologies in advance in case you take offence
                ---------
                I have another posting under "Real Estate Prices in Chennai crashing".

                Don't want to repeat this but its always good to study history of the markets - longer the period, better your understanding!

                Prat12 - whats your "understanding" of the market that is greater than the sum of all our understanding? Does you memory go back say, 20-30 years? Or is it only restricted to this very short totally artificial, easy-credit driven boom period of last 6 years? Only arrogant (and foolish) people claim expertise in any markets. I personally know the Chairman of Sobha for last 8 years (my luck). Even he is not as cock-sure as you about this market! The wise ones study it carefully, take profits quickly, do not borrow/extend themselves too much and run like hell when crashes begin. You mentioned that land prices only go up. In our grandfather's days, yes. But in those days they only went up gradually, assimilating value over time. Not like this 100s of % in few years in locations only fit for pigs to live in (apologies to pigs!). And just in case you didn't know, the most prime property on MG Road in Bangalore (which was the ONLY boom IT city in 1995) crashed from around Rs.12,500 per SFt at the peak in 1995 to around Rs.2,500 at the bottom in 1998. At that time you couldn't find a buyer for love or money. MG Road regained the original peak only in early-2005, a FULL 10 YEARS LATER. Whitefield (in those days outside Bangalore) crashed from 60 lakhs to 10 lakhs an acre in the same period and no buyers at the bottom. So, don't be so cock-sure about land prices not coming down ever - what goes up too fast WILL come down even faster! . Like our stock market in recent months. And I'm NOT BULLSHITTING here. Go back and check.

                Remember, like in the US and other countries in the last 1-2 years, people who have the most to lose (like builders, bankers and realtors) are in TOTAL DENIAL about the coming crash (they are clueless about it). Stock prices are a very reliable indicator of whats going to happen in the real market in next 6-9 months. DLF, Sobha, etc are down over 70% from their peak ONLY 6 months ago. Ansal over 80%. IMAGINE only 6 short months! Check out RE company Balance Sheets. They have bought land at highest bubble prices, built ridiculous contraptions in the shortest possible time with material and labor at highest input costs - and all of these with loans whose interest rates are shooting up and will remain high for some time to come. They are running out of cash rapidly and they are not telling brokers about their desperation - which makes brokers think that alls well

                Prat12, even if someone is fool enough to buy now (and there are some of those around believing what builders and brokers say), where are they getting loans (leave 7.5%, even for 12%?). I'm a 23-year veteran of the IT business with a fat salary as well as being a 22-year veteran of the stock markets having seen 4 bear markets. Can you point me to a Bank which will give me a loan without making much of a fuss today? I'm having a hard time doing so! Even if you know a lot about the current RE market, how about knowing a little more about customer psychology. Simple question. Will YOU buy something today as easily as you reccomend to others? I doubt it.

                I repeat. RE boom of 90s very similar to current boom - only, this one is much bigger. Both triggered by India's "shining" export-led boom as well as hot-FII-money seeking better returns boosting up our Foreign Exchange reserves and giving us a false sense of being an economic superpower. Last week, both China and India had a HUGE negative rating and this hot-money is flowing out rapidly ($6 Billion in last 2 weeks). Today's eco-times talks of upto 90% fall in RE volumes in some places. Coming months will show us HOW WEAK our economy really is/was!!! Brace yourselves and don't do foolish things like taking on big loans and buying RE now (or big cars for that matter). After all your builder is not guaranteeing you a buy-back in case things go wrong!!!

                Study the US market. This is ALWAYS the way RE markets fall - unlike Stock Markets. FIRST volumes crash - as people continue to be in denial and hold back sales for a better price - Home buying/selling has vastly different psychology from Stock buying/selling. During this time builders continue to build (hoping for a quick bottom at 15% lower) as demand crashes and supply/demand ratio takes off. SECOND prices start to decline by around 10% - 20% range as the weaker builders start the sell-offs as they can no longer hold out (and deperate banks start recalling loans on property not sold for months together). Economic conditions worsen and people losing salaries and jobs also start early distress sales (these are the luckier ones). A false bottom of 20% is touted by builders as LIFETIME OPPORTUNITY TO BUY. Believe it at your own peril. THIRD when economic crisis worsens and panic sets in, the REAL decline in prices start. This could bring down prices in boom areas by as much as 50% to 75%. I have seen it before in much smaller Bear Markets. This Bear is the BIG ONE which happens once in 60-70 years - which is why we don't remember it since those who lived then are mostly gone with their wisdom! And is expected to last till 2010 - 2012 at least (effects could go on for a decade).

                Megha said, waiting for the bottom is stupidity. I Agree! Only I request all of you to wait till the sellers are BEGGING you to take property off their hands AT ANY PRICE/TERMS. That is the bottom +/- 10% !!!

                Once again, this post is only for people to learn from my experience and no offence intended

                cheers

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                • #28

                  #28

                  Re : Coming Property Crash

                  I think property prices(specially residential) are in for a huge correction in the weeks & months to come, all over India. The reasons are many, but most importantly, (1) Incomes rising not as much as the greediness of builder/politicians who keep on jacking up prices, (2) Investors not being able to hold their properties for long will flood the markets with their properties....(Unlocking of locked supplies)(3) No real infrastructure improvement except in some pockets of the metros...(3)There is a limit to everything....how long will anything continue to defy gravity...(4) When everyone will be in his/her own house, who will rent...(5) Tight money supply conditions...

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                  • #29

                    #29

                    Re : Coming Property Crash

                    Great !!!

                    *wiseman

                    Great survey... People should understand this logic. Becos of the greddiness every Builder will say No for Value Crashing. Today this Builder Ride in Audi/Merc Car, and we are still in M800. Always in debt from Banker.
                    And our future is also not secure. Hope people will realise this soon.
                    Either land or AIR and FOOD. Choice is yours.

                    Comment

                    • #30

                      #30

                      Re : Coming Property Crash

                      Wisemen

                      Really appricate you analysis

                      Thanks

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