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Reality prices to crash...

Last updated: May 25 2009
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  • #41

    #41

    Re : Reality prices to crash...

    Friends,

    We all know that people who earn large money, park them in RE, Thats the safest haven for them.

    They have been doing this for several years, and are continuing doing so because they are still able to afford it.They are buying out of their money.

    As long as they are able to convert the unmanageble cash into a solid immovable asset like RE they are happy and dont care about the returns,the economic situation etc.

    They have various sources of income unlike the salaried class who are so dependant on their job.

    Coming to the point, how many of you believe the present boom were caused by these business people??They are just the end users who bought the property outright at the market price, not the ones who speculated.They dont take home loans from bank to buy homes.

    India is a large country and classic example of paretto's principle, where just 20% of the population contributes to 80% of the countries economic growth.

    85.7% of the population was living on less than $2.50 (PPP) a day in 2005 says a world bank report.

    Most of the growth came only after the 90's when we opened our markets to the world.Even though we have had good regulations we are still heavily exposed to foreign countries economy and when they collapse we will surely be affected too.

    The most affected would be the export business and the one's that hugely leveraged the banks and foreign investments.They may take several years to recoup and reach the same growth rate as earlier.

    For people and business who are producing for internal consumption, this is a growth opportunity.

    I doubt the people who own large acres of agricultural lands in countryside and villages,who are harvesting crops are gonna be affected by this.They never enjoyed the sudden spurt of growth in their profession and may not feel the brunt also in any way.they may not be able to sell at huge profits to the builders and industries anymore, but thats only opportunity loss.They are landlords then and will remain landlords in their place still commanding respect.

    There will still be several pockets of people who will not even feel a pinch.

    When we hear of a crash or talk about bubble burst and RE prices crashing 1/5th of the peak.My understanding is that we are talking about rolling back of the crazy escalation of prices.

    If a flat was sold at 20L in 2002, and being sold in 2009 at 1C.I feel the crash means the property will be priced at a more saner corrected price of 40-50 L.
    Last edited March 2 2009, 01:08 AM.

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    • #42

      #42

      Re : Reality prices to crash...

      you miss the social fabric which attracts people

      Originally posted by nick_alan_76 View Post
      Wiseman. Very well put. First we had Irrational Exuberance (in words of Alan Greenspan) and now denial to accept the reality.

      Here is to people who think the real estate properties WILL ALWAYS come back, this is what happened in Japan in 1989 (which was the largest exporter that time with HUGE trade surplus... UNLIKE INDIA which still has public debt ~59% of GDP).


      KS & ABK: Do you still feel the real estate price bounce back is only a matter of time? How long are you willing to wait?
      all here! there is a fundamental diff between japans social fabric anf that of US and india and few other countries like UK etc. the society at large in india and US is friendly and accomodative of settlors and does not have the overtures of "cold shoulders" or "you ar unwelcome" stance.

      tell me if today US announces citizenship to anyone who brings in a million $s
      i am sure there will be a million people across the globe to avail that. and how many across the globe other than the orientals will like to relocate to japan if japan gives that offer.hardly any.
      India has friendly people and anybody would not have much apprehension about settling in india and US (leave JK and WB etc).

      we all know that it was the social fabric of the US and its immigration laws
      and the open economy which attracted talent to the US. even today most students aspire to go to the US, you heard anyone dreaming about japan????

      dont compare japan and the world.

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      • #43

        #43

        Re : Reality prices to crash...

        Japanese Social Fabric

        ABK: Japanese are probably the least understood society. There is lot more we Indians have in common with the Japanese than with Americans. How do I know? I live in America and have years of first hand experience dealing with the Japanese (Japanese born and brought in Japan... Not one person but over 50 people). The similarities start from the religion (not only Buddhism but also Shintoism), hierarchy in order, trust building, code of honor, code of conduct etc. Let me know if you would like to know more about them. I can write a whole thesis. But just to give you some perspective.

        The "cold shoulder" that you mention is actually apprehension. It stems from the fact that they follow strict guidelines of personal conduct which outsider seldom do (I messed up in dealing with them too. Too me long time to clarify the matters).

        Now coming back to America. If you know analyzed and not just read the immigration history of the country, you would realized that original immigration happened to REPLACE the aboriginals (this is mellowest I could go). Do you want to still compare India with USA? And who would you replace in India ?



        The achievers who went to America were already achievers in their own countries. Here are some examples:
        Albert Einstein (Germany)
        Hakeem Olajuwon (was a player in Nigerian national team)
        Martina Navratilova (Czechoslovakia player who had already won professional singles title in Orlando) etc.
        Do you know this talent was bought with borrowed money? USA has an astronomical debt. Here are numbers compiled in late 2007. They have grown a lot since.
        $9.2 Trillion - Federal Government Debt
        $2.2 Trillion - State & Local Government
        $41.6 Trillion - Private (household, business and financial sector)
        Total Debt (exclude contingent liability items) = $52.9 Trillion

        Add to this:
        $85.6 Trillion - Unfunded Medicare contingent liabilities (part A $34.4 T, part B $34 T, Part D $17.2 T)
        13.6 Trillion - Un-funded Social Security contingent liabilities estimated looking forward

        America as you see it today is living off of the borrowed money. Immigration HAS to be allowed because they are not producing enough Doctors, Engineers and Scientists.

        I am so glad we are NOT LIKE America and I hope we don’t become like them.

        Did you know that the population density of Japan is about same as India (Japan 339 people/Sq.Km. vs. India 336 people/Sq.Km vs. USA 31 people/Sq. Km.)

        Originally posted by abk View Post
        tell me if today US announces citizenship to anyone who brings in a million $s
        It already is there. Well sort of. First you get Green card then citizenship. Google the word EB-5 visa. While you are at it, also check how many people are taking up the offer and their profiles. Not many haah ?

        This post is getting longer. I will continue in the next one at a later time.
        Last edited March 2 2009, 09:45 PM.

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        • #44

          #44

          Re : Reality prices to crash...

          Abhi

          nabhishek...
          Originally posted by nabishek View Post
          We all know that people who earn large money, park them in RE, Thats the safest haven for them
          That's not correct. We all know that people who make large money want to invest in tangible productive assets that provide returns. They do not PARK it. RE in todays day and age does not provide returns. In fact it will be proved that it's a black hole for money (black and white). It’s not clever to say people want to invest money in immovable assets. It is a tradeoff between liquidity and returns (investment 101).

          Originally posted by nabishek View Post
          They are just the end users who bought the property outright at the market price, not the ones who speculated.
          Do you even know the definition of speculator? Here is a definition just for you:
          A person who trades with a higher-than-average risk, in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, or ********, in the hopes of making quick, large gains.
          Originally posted by nabishek View Post
          85.7% of the population was living on less than $2.50 (PPP) a day in 2005 says a world bank report.
          Those are 85.7% people LESS affected by the global slowdown. Those are also the people who cannot afford Rs. 20L flat… let alone a 1Cr house.
          Originally posted by nabishek View Post
          If a flat was sold at 20L in 2002, and being sold in 2009 at 1C.I feel the crash means the property will be priced at a more saner corrected price of 40-50 L.
          Read my post just before yours and also read the definition of Speculator.
          Last edited March 2 2009, 09:44 PM.

          Comment

          • #45

            #45

            Re : Reality prices to crash...

            Hi Nick,

            Looks you have not read my post in detail and havent understood the context and continuity in which i have written.

            nabhishek... That's not correct. We all know that people who make large money want to invest in tangible productive assets that provide returns. They do not PARK it. RE in todays day and age does not provide returns. In fact it will be proved that it's a black hole for money (black and white). It’s not clever to say people want to invest money in immovable assets. It is a tradeoff between liquidity and returns (investment 101).
            RE becoming a black hole for white and black money alike is because of the over valuation of assets and over leveraging that happened in the past few years.

            your point that people have to invest in productive tangible assets is well taken.

            The crash in prices is because the real valuation and real worth of properties/assets are catching up.All the non-existant profit and money one saw growing on their books is getting wiped off.Not because RE is giving you returns less than it ought to.RE grows over long cycles,the boom and bursts are part of the cycle.

            During the recession, a property worth 1 C today may devaluate to 30L.During this period the seller may not even get a buyer for 30L quoted for years together and become bankrupt in the process.Does it mean the value of property is zero?no one is going to give the property for free, there will be no buyers..and the returns from it for the recession period is zero.Thats it.

            For a person, who is buying property out of their surplus, or for self use from their own money and if they are not going to think of selling it back for another 15-20 years and have enough cash and other assets to fall back on anytime, why should they bother about the recession?Are you saying RE is not worth investing at all for another century?I am sorry, I beg to differ.

            My comment
            "We all know that people who earn large money, park them in RE, Thats the safest haven for them"

            If you can tell me any other avenue where businessmen/politicians can keep Crores of Rupees thats not on the books, evading tax and without being noticed in India.I will get convinced that RE is not the safest haven.

            Holding RE is not just for returns, Its about marking one's territory.From time immemorial we have seen this behaviour,Looking back at History also we can see People who own the land, rule that land.

            Its the same even today, thats how people command power.Its a matter of Pride not X Rupees or Y Dollars.

            Do you even know the definition of speculator? Here is a definition just for you:
            A person who trades with a higher-than-average risk, in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, or ********, in the hopes of making quick, large gains.
            Thanks for putting up the definition of speculator here,I had never looked up a dictionary definition.You saved me lots of time and effort.

            Neverthless, My understanding is right.

            Read my comment again seems you overlooked the "not"

            "They are just the end users who bought the property outright at the market price, not the ones who speculated."

            To clarify, this sect of people who bought RE of their money, dont expect quick,large gains or immediate returns is what i meant.They can hold it and pass it down for generations together.

            Remember, not everyone see's RE just as an asset class.Its bound by sentiments in India.

            Those are 85.7% people LESS affected by the global slowdown. Those are also the people who cannot afford Rs. 20L flat… let alone a 1Cr house.
            When these people couldnt afford the 20L already, do they bother if 1C crore property becomes 20L??

            During the recession, These 85.7% people would be able to adjust and adapt quicker than the rest.I believe India is a stronger country than how the world perceives it.We have time and again surprised ourselves by bouncing back in troubled times.Thats the strength we derive from our unity among diversity.

            Our dream of becoming superpower in 2020 may take longer to be realized.But we are getting there slow but steady.

            Read my post just before yours and also read the definition of Speculator.
            Not everybody take informed decisions and know what they are doing.Most of us just get carried away.

            Every one have the right to their own opinion and have their own reasons to act and believe in a way,it should be respected.

            I am preparing myself for any inadvertant situation I may face in the future due to my job or due to the economy.I feel its the wisest thing to do now, so I am saving up cash by investing in FD's and monitoring my investments closely,I have no debt and do not over exert my capacity.Its a conscious decision I have made from the inputs I have gathered.

            I Believe the RE market in Chennai needs correction upto 40-50% from 2007 prices.

            i.e. Inflation/CAGR RE returns adjusted 2003/2004 prices.

            In a way I am also hoping to cut down on my losses by holding back and not anticipating quick large gains by buying today.Many would say being in wait and watch mode is also no less than speculating.I would completely agree with them.

            None of us know what future holds for us, We are all acting upon the cues that we get from sources around us and are making choices hoping its the right one.

            Risk is everywhere.What if the recession hits the Indian banks and the bank where I have my FD becomes bankrupt?RBI would give me back only 1 Lakh per account..what about the rest of my savings?Isnt it a huge risk?

            To say holding cash is the only best thing to do is also foolish.Not the same rules apply to everybody.If things are going to be really very bad then all of us will be affected by collateral damage in a life altering way.No exceptions.whatever be our stand, it is not going to make any difference.

            I urge that one should make a well informed decision,take full responsibility for it and be prepared to face whatever comes of the decision.

            Unless there is a armageddon, global catastrophe and natural disasters or nuclear warfare we wont go back to the stone ages.

            India is a large country with large population, but has very less towns and cities which have good infrastructure and capacity to sustain the needs of diverse people.

            As long as mankind rules earth, Demand for a home in a civilized society to live will prevail.

            Nick,I really admire your knowledge and grasp of the world economy, learning lot from your posts.keep your thoughts coming.
            Last edited March 3 2009, 02:28 AM.

            Comment

            • #46

              #46

              Re : Reality prices to crash...

              Originally posted by nabishek View Post

              For a person, who is buying property out of their surplus, or for self use from their own money and if they are not going to think of selling it back for another 15-20 years and have enough cash and other assets to fall back on anytime, why should they bother about the recession?Are you saying RE is not worth investing at all for another century?I am sorry, I beg to differ.

              My comment
              "We all know that people who earn large money, park them in RE, Thats the safest haven for them"

              If you can tell me any other avenue where businessmen/politicians can keep Crores of Rupees thats not on the books, evading tax and without being noticed in India.I will get convinced that RE is not the safest haven.

              Holding RE is not just for returns, Its about marking one's territory.From time immemorial we have seen this behaviour,Looking back at History also we can see People who own the land, rule that land.

              Its the same even today, thats how people command power.Its a matter of Pride not X Rupees or Y Dollars.



              Thanks for putting up the definition of speculator here,I had never looked up a dictionary definition.You saved me lots of time and effort.

              Neverthless, My understanding is right.

              Read my comment again seems you overlooked the "not"

              "They are just the end users who bought the property outright at the market price, not the ones who speculated."

              To clarify, this sect of people who bought RE of their money, dont expect quick,large gains or immediate returns is what i meant.They can hold it and pass it down for generations together.

              Remember, not everyone see's RE just as an asset class.Its bound by sentiments in India.



              When these people couldnt afford the 20L already, do they bother if 1C crore property becomes 20L??

              During the recession, These 85.7% people would be able to adjust and adapt quicker than the rest.I believe India is a stronger country than how the world perceives it.We have time and again surprised ourselves by bouncing back in troubled times.Thats the strength we derive from our unity among diversity.

              Our dream of becoming superpower in 2020 may take longer to be realized.But we are getting there slow but steady.



              Not everybody take informed decisions and know what they are doing.Most of us just get carried away.

              Every one have the right to their own opinion and have their own reasons to act and believe in a way,it should be respected.

              I am preparing myself for any inadvertant situation I may face in the future due to my job or due to the economy.I feel its the wisest thing to do now, so I am saving up cash by investing in FD's and monitoring my investments closely,I have no debt and do not over exert my capacity.Its a conscious decision I have made from the inputs I have gathered.

              I Believe the RE market in Chennai needs correction upto 40-50% from 2007 prices.

              i.e. Inflation/CAGR RE returns adjusted 2003/2004 prices.

              In a way I am also hoping to cut down on my losses by holding back and not anticipating quick large gains by buying today.Many would say being in wait and watch mode is also no less than speculating.I would completely agree with them.

              None of us know what future holds for us, We are all acting upon the cues that we get from sources around us and are making choices hoping its the right one.

              Risk is everywhere.What if the recession hits the Indian banks and the bank where I have my FD becomes bankrupt?RBI would give me back only 1 Lakh per account..what about the rest of my savings?Isnt it a huge risk?

              To say holding cash is the only best thing to do is also foolish.Not the same rules apply to everybody.If things are going to be really very bad then all of us will be affected by collateral damage in a life altering way.No exceptions.whatever be our stand, it is not going to make any difference.

              I urge that one should make a well informed decision,take full responsibility for it and be prepared to face whatever comes of the decision.

              Unless there is a armageddon, global catastrophe and natural disasters or nuclear warfare we wont go back to the stone ages.

              India is a large country with large population, but has very less towns and cities which have good infrastructure and capacity to sustain the needs of diverse people.

              As long as mankind rules earth, Demand for a home in a civilized society to live will prevail.

              Nick,I really admire your knowledge and grasp of the world economy, learning lot from your posts.keep your thoughts coming.
              Dear friend,

              I liked your above views. Really plain speaking of the facts.


              ks2071746

              Comment

              • #47

                #47

                Re : Reality prices to crash...

                So I offloaded some more of my RE

                Originally posted by nabishek;14*05
                The crash in prices is because the real valuation and real worth of properties/assets are catching up.
                I tend to agree with you under normal market correction. But this is biggest post WW2 recession (depression?) than that. Please read up my earlier post where I mentioned my criteria when RE will look attractive again. That my friend is real valuation.

                Originally posted by nabishek;14*05
                For a person, who is ***ing property out of their surplus, or for self use from their own money and if they are not going to think of ******* it back for another 15-20 years and have enough cash and other assets to fall back on anytime, why should they bother about the recession?Are you saying RE is not worth investing at all for another century?I am sorry, I beg to differ.
                They should not bother if they bought it at RIGHT PRICE and have guaranteed income and no unexpected expenses that require cash-out. I have not met 1 person in last 6 months who can guarantee his income for next 5 years (let alone life). I already mentioned you about my criteria for the Right price.

                Originally posted by nabishek;14*05
                If you can tell me any other avenue where businessmen/politicians can keep Crores of Rupees thats not on the books, evading tax and without being noticed in India.I will get convinced that RE is not the safest haven.
                People who have that kind of money, already know. Plus do not expect anyone to spell it out so openly.

                Originally posted by nabishek;14*05
                Holding RE is not just for returns, Its about marking one's territory.From time immemorial we have seen this behaviour,Looking back at History also we can see People who own the land, rule that land.
                Wow. Last I checked we were a republic democracy and we can nott create any independent territories. Anyway, it would make sense for people who are intent on farming that land and not just SIT ON IT.

                Originally posted by nabishek;14*05
                Neverthless, My understanding is right. Read my comment again seems you overlooked the "not"
                :-D

                Originally posted by nabishek;14*05
                During the recession, These *5.7% people would be able to adjust and adapt quicker than the rest.
                Heard of Bengal femine in the last depression?

                Originally posted by nabishek;14*05
                I believe India is a stronger country than how the world perceives it.
                I agree whole heartedly. I am planning to write a separate segment why I feel India is stronger (and its not the reasons you would normally expect). But I agree completely. Mera Bharat Mahan!!!


                Originally posted by nabishek;14*05
                Every one have the right to their own opinion and have their own reasons to act and believe in a way,it should be respected.
                Agree again.

                Originally posted by nabishek;14*05
                I am preparing myself for any inadvertant situation I may face in the future due to my job or due to the economy.I feel its the wisest thing to do now, so I am saving up cash by investing in FD's and monitoring my investments closely,I have no debt and do not over exert my capacity.Its a conscious decision I have made from the inputs I have gathered.
                Good for you. I hope others have done their own arrangements as well.

                Originally posted by nabishek;14*05
                To say holding cash is the only best thing to do is also foolish.
                Sitting on Cash does not mean have Rs. 5Cr. In bank or under the bed. Diversification is the name of the game. Look again for Tangible Productive assets.

                Originally posted by nabishek;14*05
                Nick,I really admire your knowledge and grasp of the world economy, learning lot from your posts.keep your thoughts coming.
                You too.
                Last edited March 3 2009, 11:50 PM.

                Comment

                • #48

                  #48

                  Re : Reality prices to crash...

                  I tend to agree with you under normal market correction. But this is biggest post WW2 recession (depression?) than that. Please read up my earlier post where I mentioned my criteria when RE will look attractive again. That my friend is real valuation.
                  This is the first recession/depression threat Independent India is going to face.We will have to wait and watch how we cope up and react to it.

                  The Indicators are clear, The future for coming decade looks bleak in terms of growth.

                  As Wiseman once stated, The possibility of us going back to the state in which we were in the 90's is not ruled out.In that case, The real valuation you are suggesting wont see light until 2011-12 or may take even longer.

                  My current expectation/estimate of the right price seems more probable and realistic to me given the present unrelenting nature of Indian real estate,mentality of people who invest any surplus in Gold and Real estate and the debatable impact of global recession on India.

                  Would surely revisit it again at a later time.

                  I am trying to be cautiously optimistic and hope that our over-protective policy and good regulation could have shielded us of the major harmful effects of the global crisis.

                  They should not bother if they bought it at RIGHT PRICE and have guaranteed income and no unexpected expenses that require cash-out. I have not met 1 person in last 6 months who can guarantee his income for next 5 years (let alone life). I already mentioned you about my criteria for the Right price.
                  Those who have bought, Believe its the right price for them because they were able to afford it and felt comfortable doing so.

                  We also cannot guarentee that we will wake up the next morning when we go to sleep each night, do we try not to sleep.Life moves on.When faced with unprecedented situation or crisis people adapt making sacrifices.If one was prepared they will sacrifice less.

                  People who have that kind of money, already know. Plus do not expect anyone to spell it out so openly.
                  Sure, people have their ways.

                  Wow. Last I checked we were a republic democracy and we can nott create any independent territories. Anyway, it would make sense for people who are intent on farming that land and not just SIT ON IT.
                  We have modern rulers.constituitionally and democratically elected/empowered politicians.They indulge and promote ghettoisation deliberately to gain cheap political mileage.

                  Also, I am talking of the psyche of every person to own a land in their motherland and call it home or native.No one would want to live like nomad or vagabond.

                  most NRI's invest in Indian RE because this is where their root lies.

                  Heard of Bengal femine in the last depression?
                  Yes I have.Its unfortunate and could and should have been avoided.

                  I agree whole heartedly. I am planning to write a separate segment why I feel India is stronger (and its not the reasons you would normally expect). But I agree completely. Mera Bharat Mahan!!!
                  Looking forward to it.

                  Good for you. I hope others have done their own arrangements as well.
                  I am learning important life lessons in the process, there's lots more to assimilate.

                  Sitting on Cash does not mean have Rs. 5Cr. In bank or under the bed. Diversification is the name of the game. Look again for Tangible Productive assets.
                  Thats how I have been planning my portfolio.I emphasis, proper risk assesment and proper backup is necessary even if it means less return.

                  When recession/depression is bad, all investment instruments will be affected.We are currently in a volatile environment and nothing is as it seems.One should choose and plan based on their future needs and their comfort level.

                  You too.
                  All the best to you,Nick.
                  Last edited March 4 2009, 11:34 AM.

                  Comment

                  • #49

                    #49

                    Re : Reality prices to crash...

                    Wonderful posts and arguments in this thread ...

                    The quality of last few posts on this thread has reached high levels. Very nice to see it.

                    You will notice that all of this has been achieved without a single bad (or unnecessary) word!

                    Congratulations everyone

                    Now its my turn to threaten to quit this forum - just kidding!!!

                    In times like this, here is a good philosophy to go with ...

                    - Hope for the best, prepare for the worst

                    - Cut your losses as soon as possible. Take your profits even sooner!

                    - While Cash become King, Debt could be your (financial) Death

                    cheers

                    Comment

                    • #50

                      #50

                      Re : Reality prices to crash...

                      Dear friend,

                      I agree. The quaility of the posts and the comments from many have improved a lot and very nice to read the posts and the comments/views. I am sure this trend will continue to make the forum more useful to the members and guests.

                      ks2071746

                      Comment

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