The real estate segment from Americas to Europe is going under. The real estate prices in USA are down 18% from last year. In some key markets where the home prices went up just like India (upward of 40%/year) such as Las Vegas, San Francisco, Miami, the prices have actually gone down by 30%+ in 1 year and projected to go down further 30%+ in 2009. The trend is still pointing downward even when the mortgage rates are at 4.5%/year. Comparing these, the rates in India are still considerably higher. Spain has worst real estate bubble in Europe and its property prices still did not rise as fast as India’s. Spanish real estate is expected to start stabilizing (not recovering) in 12 to 18 months.
Before you invest in real estate, consider the following facts:
1. Job Losses: Job losses are still happening and will only accelerate in 2009 with projected 1 million job losses/month only in United States. Indian industries such as IT, BPO, Textile are still 60%+ dependant on USA.
2. Europe is still struggling with several of its large economies (France, Germany, Italy, UK etc) have negative growth projections for 2009. If you think it’s not bad, know it that they had positive growth in 2008. They think it will be bad for them; we are dependent on them, what makes us deferent?
3. Japan went into slowdown in 1990s and till date it hasn’t gotten out of it. It’s the second largest economy in the world. Toyota (one of the world’s strongest companies) has posted first loss in 71 years.
4. Economists are not simply calling it a recession but a depression. Do a brief read up on what happened during depression of 1930s and 1970s. It’s not pretty.
5. If you are investing in real estate for purely investment purposes and not to live, put yourself in the shoes of real estate speculators in Las Vegas and Miami. See if you can sit on the house seeing its value depreciate when you could have invested in more productive assets.
6. We had a brief primer in real estate fall in Mumbai in the 1990s. Learn from the people who got burnt.
7. Fall in Commodity prices including the price of Crude Oil (Major and probably the only source of income in Gulf countries) is having an adverse impact on the boom that was there. So there would be job losses in Gulf countries as well. Remember OPEC has been meeting consistently and talking about reducing the oil production.
8. China with its vast foreign exchange reserve is still not able to maintain its growth rate. Its projected growth rate for 2009 is 6%. Some time back Chinese officials claimed that growth rate below 8% is devastating for China’s internal peace. This is even after the fact China has offered the stimulus package worth $586 billion (compare that to India’s $4 Billion).
9. Satyam-Maytag Deal: Remember how wholeheartedly investors dumped the Satyam stock? They wouldn’t have down that if they saw value in the real estate segment.
10. Remittances from NRIs: Remittance from NRIs would certainly be down because NRIs just don’t print money. They still have to have a job and a sense of security to keep sending money home. If I was keeping $15,000 with me before, I would be at least saving $10,000 + cost of living for 6 months before sending a dime to invest in speculative real estate.

I am consistently getting emails from real estate companies/agents/dealers saying that now is time to buy and we have reached the bottom. My response to them is rest of the world’s economist with 100+ years of financial data analyzed are still not in a position to call the bottom.
The 3 biggest buyers of real estate in India were:
1. Well to do professionals such as IT people, BPO people, people with higher salaries (above 10-15 lacks/year) specifically employees of multinationals.
2. Business owners and people with black money investing in the real estate to hide the income.
3. NRIs who intend to either live (some day) in India and NRIs who thought that real estate in India would earn them more returns than in their countries of residence.
The banks which were lending to buy the real estate are suffering themselves from the tightened
The banks which were lending for the real estate purchase are themselves suffering from the credit crunch. The banks will soon be too reluctant to lend (even though the interest rates are down, where is the money to lend?) and will be lot stricter in their lending.
Now coming back to the 3 types of borrowers:
1. IT/BPO/MNC employees: Their jobs are on the line in 2009/2010. Those with job are not guaranteed that job when the sheet hit the fan in 2009/2010. Even if they have cash at hand, they will be reluctant to make the move. The laid off people will find it difficult to make payments and houses will be repossessed. These people once burnt, will be very slow to come back to real estate market.
2. Business owners will find their lines of credit affected due to credit crunch and/or their sales down. How long will they just sit on the property if the value keeps dropping? They still need to capital to keep the business running.
3. NRIs: NRIs have already lost 20% of their investment even if the house prices didn’t drop. This is because Indian Rupee has dropped 20% compared to US$. Remember, NRIs realize their gains in their country of residence. It’s worst for NRIs than the other 2 groups combined.
If you think about it, worst has not even started yet. You will see it start when builders who borrowed from the banks are not able to make good on their payments, large number of houses and businesses will be repossessed, builders will start selling under the cost just to get rid of the inventory and speculative investors will rid themselves of the un-needed properties.
I am not trying to discourage everyone from the real estate. I am one of the people still holding the house and few other properties in India. I was lucky to offload a few of them in August but I am still left holding the bag on few others. The only people who should be buying right now are those who can justify rent vs. buy equation and have guarantee of source of income. If you don't know that equation, read up before buying real estate. It's an investment of life time. Don't go with the hype.
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  • Originally Posted by GoccaMacca
    Dump and run


    Why not one run and dump ?
    CommentQuote
  • After long days I can see clear cut picture from nic alan's post. Keep writing.

    Thanks

    chataara
    CommentQuote
  • Forgot me so soon? :)

    Originally Posted by chataara
    After long days I can see clear cut picture from nic alan's post. Keep writing.

    Thanks

    chataara



    Dude Chataara,

    Forgot me so soon? I only got off posting a few days and its as if I didn't happen here at all!!! :D

    Don't forget:

    1. Who FIRST claimed the 50% to 80% fall back in June 2008
    2. Who FIRST used the term Depression (and actually defined the meaning of it just so you could be clear)
    3. Who FIRST used the last RE bear market as a base to predict this RE bear's fall
    4. Who FIRST calculated the job loss scenario in detail in the IT/ITES segment (500000 jobs to go in this segment)
    5. Who FIRST stated that the worst hit country will not be US, UK, Spain, Japan or any of the others. It will be China! Surprised? There are very valid reasons for it. Latest news that supports my claim: China's GDP growth has crashed from 12% to zero in just a single quarter. 20 million workers (actually may be more) are predicted to have already been rendered jobless with very little prospects of another job!

    The problem was, I was too early and these predictions so early are hard to believe!!! :D

    A small correction for Alan:

    Oil prices are at an artificial low (justified) and may even go as low as $15 a barrel. But this is a temporary phenomenon. When economic growth stabilizes and picks up, expect oil to not only go past its $148, it will rise on a long term basis to much higher levels. There are fundamental reasons for this.

    Otherwise, generally agree with Alan that this fall will be catastrophic!

    Also please note that, while the next few months will be deflationary, the amount of money being pumped into the world (many trillions of $$$) will ensure that the subsequent period of many months will be WILDLY inflationary. Many countries will go the way of Zimbabwe today. In that period, you may very well see the old prices for RE (and almost anything else as well). But the currency will become very weak, people will have little appetite for buying and subsequently many economies may simply collapse taking the world to an even deeper depression than the one you will see in 2009/2010. WATCH OUT for the second one. While the first may weaken you, the second will be the killer!

    cheers
    CommentQuote
  • Fail to understand

    Originally Posted by wiseman
    Also please note that, while the next few months will be deflationary, the amount of money being pumped into the world (many trillions of $$$) will ensure that the subsequent period of many months will be WILDLY inflationary. Many countries will go the way of Zimbabwe today. In that period, you may very well see the old prices for RE (and almost anything else as well). But the currency will become very weak, people will have little appetite for buying and subsequently many economies may simply collapse taking the world to an even deeper depression than the one you will see in 2009/2010. WATCH OUT for the second one. While the first may weaken you, the second will be the killer!

    cheers


    Wiseman,
    Fail to understand this, Inflation is caused by demand, and you are saying there will be hyper inflation as in Zimbabwe even though there is little demand.
    Can you please eloborate.
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  • Inflation, what it means ...

    Originally Posted by ramg
    Wiseman,
    Fail to understand this, Inflation is caused by demand, and you are saying there will be hyper inflation as in Zimbabwe even though there is little demand.
    Can you please eloborate.


    RamG,

    Inflation is commonly understood by we common people as the increase in prices (due to demand, we think). So we equate increase in price as inflation - and in a sense, it is an inflated price.

    But for economists, inflation is the increase in money supply. And now-a-days it means both money as well as credit (after all credit is another way of printing money, right?).

    So, the real problem is this. The US (at first) and the whole world is now hugely increasing the supply of money as well as credit (all those bailouts). When this increase works through the economy, eventually it will lead to a hitherto unseen inflation worldwide (imagine Zimbabwe). And coupled with weak purchasing power, it will eventually lead to a severe debasement of currency (expect a very weak currency; some expect the US $ to decline 60% in 2009 alone) as well as a general inability of common people like us to buy stuff at the level we do today (even land/property).

    This, in other words will mean poverty to a lot of people, including some who still feel rich today - just think about not having enough money to buy stuff. One way is if your income comes down and prices remain stable. Another way is, even if your income remains the same (doubt if it will go up!), the prices rise enormously (due to both shortages as well as fall in currency value), you still become poor.

    And just so you don't fall for silly half-baked stories like Nats' (who will point to this post and tell you that price will go up because even I said so :)), please remember that whatever may happen to prices, our buying power will become much weaker.

    Hope you got it about inflation.

    cheers
    CommentQuote
  • 1+. Job freezing by many IT company.
    2+. Inflated Real Estate value.
    3+. Profit margin falls more than 70% in Many RE Company... :D
    CommentQuote
  • Originally Posted by wiseman
    RamG,

    Inflation is commonly understood by we common people as the increase in prices (due to demand, we think). So we equate increase in price as inflation - and in a sense, it is an inflated price.

    But for economists, inflation is the increase in money supply. And now-a-days it means both money as well as credit (after all credit is another way of printing money, right?).

    So, the real problem is this. The US (at first) and the whole world is now hugely increasing the supply of money as well as credit (all those bailouts). When this increase works through the economy, eventually it will lead to a hitherto unseen inflation worldwide (imagine Zimbabwe). And coupled with weak purchasing power, it will eventually lead to a severe debasement of currency (expect a very weak currency; some expect the US $ to decline 60% in 2009 alone) as well as a general inability of common people like us to buy stuff at the level we do today (even land/property).

    This, in other words will mean poverty to a lot of people, including some who still feel rich today - just think about not having enough money to buy stuff. One way is if your income comes down and prices remain stable. Another way is, even if your income remains the same (doubt if it will go up!), the prices rise enormously (due to both shortages as well as fall in currency value), you still become poor.


    cheers


    wiseman youseem to say what the us thinktank under obama is doing is
    foolish and will only cause more damage then solving problems.
    you think what the indian thinktank doing is stupid.
    you think the world leaders meeting at davos are all fools
    to inject liquidity in the world.
    this is too much to digest WISEMAN.
    you paint evryone as idiots,nobody understands economy except you.
    CommentQuote
  • Where is bail out money going !!!!

    Thanks Wiseman,

    Where is all bail out money going ??? It is not in the banks, it is not with the people who got mortgage, it is not with companies that are making losses.

    If I think in another way, bail out is making companies look like not having suffered loss.

    Is there a way to find out this. Appreciate your thoughts.
    CommentQuote
  • Originally Posted by wiseman
    Dude Chataara,

    Forgot me so soon? I only got off posting a few days and its as if I didn't happen here at all!!! :D

    Don't forget:

    1. Who FIRST claimed the 50% to 80% fall back in June 2008
    2. Who FIRST used the term Depression (and actually defined the meaning of it just so you could be clear)
    3. Who FIRST used the last RE bear market as a base to predict this RE bear's fall
    4. Who FIRST calculated the job loss scenario in detail in the IT/ITES segment (500000 jobs to go in this segment)
    5. Who FIRST stated that the worst hit country will not be US, UK, Spain, Japan or any of the others. It will be China! Surprised? There are very valid reasons for it. Latest news that supports my claim: China's GDP growth has crashed from 12% to zero in just a single quarter. 20 million workers (actually may be more) are predicted to have already been rendered jobless with very little prospects of another job!

    The problem was, I was too early and these predictions so early are hard to believe!!! :D

    A small correction for Alan:

    Oil prices are at an artificial low (justified) and may even go as low as $15 a barrel. But this is a temporary phenomenon. When economic growth stabilizes and picks up, expect oil to not only go past its $148, it will rise on a long term basis to much higher levels. There are fundamental reasons for this.

    Otherwise, generally agree with Alan that this fall will be catastrophic!

    Also please note that, while the next few months will be deflationary, the amount of money being pumped into the world (many trillions of $$$) will ensure that the subsequent period of many months will be WILDLY inflationary. Many countries will go the way of Zimbabwe today. In that period, you may very well see the old prices for RE (and almost anything else as well). But the currency will become very weak, people will have little appetite for buying and subsequently many economies may simply collapse taking the world to an even deeper depression than the one you will see in 2009/2010. WATCH OUT for the second one. While the first may weaken you, the second will be the killer!

    cheers


    Dear Wiseman
    I always appreciate your writing. Here what I meant actually is:
    for the last few weeks i did not see your postings.
    Whenever I find your post I enjoy reading it.
    After long period I see your post again very often. Nick alan's post resembled your post.
    Keep writing wiseman
    Thanks
    chataara
    CommentQuote
  • Originally Posted by madrasi
    wiseman youseem to say what the us thinktank under obama is doing is
    foolish and will only cause more damage then solving problems.
    you think what the indian thinktank doing is stupid.
    you think the world leaders meeting at davos are all fools
    to inject liquidity in the world.
    this is too much to digest WISEMAN.
    you paint evryone as idiots,nobody understands economy except you.


    FOOD FOR THOUGHT
    CommentQuote
  • You are right WISEMAN. Oil will not stay in the $40 range for long... we both know the reason for that. That's why I am long on Oil and Oil ETFs.

    The reason I stopped posting is that my posts were suddenly not appearing on this board. It tells me that it's under "moderation". I wish that was the case with our financial markets.

    Anyway, You are again right on China. It will be a double whammy for them. One is the job losses for the Chinese due to export contractions and hence GDP loss. The other is even more interesting... You are ready for this... Chinese saved a lot (higher savings rate than India) and put the money in Bank... Where do you think the chinese banks put the money... They bought US treasuries/bonds/corporate debt/CDO/MBS etc. Those have lost value and even the USD has lost value. So people in China lost both ways... Unemployeed and Broke.

    You are spot on regarding Inflation (with a CAPITAL I)... that's why I am also long on PMs (no ETFs though). While we are on the topic, watch for Euro style currency in North America soon.
    CommentQuote
  • check your facts wiseman

    Originally Posted by wiseman
    Dude Chataara,

    5. Who FIRST stated that the worst hit country will not be US, UK, Spain, Japan or any of the others. It will be China! Surprised? There are very valid reasons for it. Latest news that supports my claim: China's GDP growth has crashed from 12% to zero in just a single quarter. 20 million workers (actually may be more) are predicted to have already been rendered jobless with very little prospects of another job!

    The problem was, I was too early and these predictions so early are hard to believe!!! :D

    cheers

    Check your facts wiseman
    china's GDP is not zero AND IS PREDICTED BY REPUTED economists to grow by 7.5% in 2009 (chinese govt says 10%)
    CommentQuote
  • Originally Posted by wiseman
    Dude Chataara,

    Forgot me so soon? I only got off posting a few days and its as if I didn't happen here at all!!! :D

    Don't forget:

    1The problem was, I was too early and these predictions so early are hard to believe!!! :D


    cheers

    hard to believe! yes when we read news your data seem to be from
    mars.
    China GDP from 12% to 0?????? show me the source.
    CommentQuote
  • Originally Posted by newboy
    hard to believe! yes when we read news your data seem to be from
    mars.
    China GDP from 12% to 0?????? show me the source.



    If u cant dazzle them with brilliance, baffle them with bullshit!
    CommentQuote
  • here check it out,

    Originally Posted by vijai5
    i think he is referring to last quarter alone,but what you are telling 8% is for the whole year


    http://news.xinhuanet.com/english/2009-01/22/content_10700833.htm

    check it out
    4th quarter gdp is 6.8%
    3rd quarter 9.0%
    2nd quarter 10.1%
    ist quarter 10.6%

    national bureau of statistics CHINA.
    CommentQuote