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.
Read more
Reply
36 Replies
Sort by :Filter by :
  • Originally Posted by abk
    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.


    here is one more source
    China’s GDP Growth Slowed to 6.8% in Fourth Quarter (Update2)

    Email | Print | A A A



    By Kevin Hamlin and Li Yanping


    Jan. 22 (Bloomberg) -- China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.
    Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.
    CommentQuote
  • you are right ... but get the point ...

    Originally Posted by newboy
    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%)



    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.



    GDP growth in China for Qtr Dec 2008 was 6.7%. The estimated growth by China's own administration is in the range of 4% - 6% next year. It was estimated that, for the western economies to be pulled out of a recession, implying a negative growth in GDP, India as well as China should have grown by at least 10% in 2009.

    Btw, China's estimates from official sources have long been thought to be cooked as per their requirements. In fact the US has been cooking their figures since Reagan days. The un-official unemployment rate now is closer to 13% than the 7.1% being touted by the BLS in the US. I can give you details about that if you want.

    My point was, with China coming in at even 6% (thats easily half the projected GDP growth in 2008 which itself will not be reached) and India probably in the 4% - 6% level, it is very likely that the world will be in deep recession or even depression by mid this year. That was my point.

    Oh yes. And this is for the person who is accusing me for thinking that I'm the only economist worth noting in this world!

    Sorry dude. First of all, I don't claim to be one leave alone an accurate one :). Second More than 150 noted economists, including Krugman, Roubini and the others think that though this bailout is the only thing to prevent the US completely breaking down, throwing enormous amounts of credit into an economy that is breaking down because of excess credit is the worst thing to do. So, I'm not the only one who thinks so (and I'm not an economist).

    Besides, they are bailing out banks by pumping in money to buy their equity at many times what they are worth. Meaning, if CITI had a total capitalization of say $30 Billion, the Govt is pumping in over $100 Billion for a part of that equity (not even the whole). This too is considered the worst thing to do.

    There is now serious talk that the 5 countries most likely to go the Icelandic way (meaning complete collapse) includes UK!. And UK is doing precisely what the US is doing.

    Btw, Japan did exactly this in 1990 to bail out the RE bubble hit banks. This hiding of bad debts by pumping in more money and keeping the banks in a zombie state is considered the main reason for Japan to be in recession 19 years from that date. Their real estate is now the same level as it was in the mid 1980s - do you want Indian RE to go there? :). You will be cleaned out for life then.

    Lastly, there is now serious talk about the US disappearing as a single country and breaking up due to the stresses of this crisis. No, not by crackpots. Serious people who track these things.

    So, if you were aiming that one about "the only one in the world who knows what he is talking" at me, don't bother. You are missing the point. I'm not talking in the air. My a** is covered because I take these points made by others seriously. Is your a** covered? Else start taking serious note of the things I'm telling you because these are the points being made by the most accurate economists in this world (not me, I'm just the courier :D).

    You have not seen a depression like this in your life and neither has your father (obviously it applies to me and my father as well - in fact he too is in denial about selling his property :)). So, we cannot let the euphoria of the boom-boom bubble period of the last few years let us be carried away. You could do that at your own peril.

    And good to see that you are not blindly taking what I say at face value and instead checking the facts :D! And correcting me when I slip - maybe I delibrately slipped to see if you guys were taking it all in without thinking? :)

    cheers
    CommentQuote
  • I'm going to be in touch with you long term !!!

    Originally Posted by nick_alan_76
    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.



    Alan,

    You are very good. I'm going to keep in touch with you long term.

    Btw, I sent you a mail regarding how to avoid having your posts inadvertently sent for moderation. Also, as the moderator says, first 100 posts, go easy on adding links to your posts. Spam checker thinks it may be advertisement for RE brokers/builders.

    cheers
    CommentQuote
  • Indian economy is better, when compared to China, in the sense it is less export focused. However, it will see the biggest bust ever due to Real Estate Industry. Prices of same real estate asset has crossed many times affordability limit. Some Banks will go down with it.

    Satyam situation is politically controlled. Govt., is trying its best not to break the bad news. We will not see its real affect soon as Govt., will try its best to delay the bad news as far as it can due to election year.
    CommentQuote
  • Thanks Wiseman. I would be honored to keep in touch with you.

    I hope Government handles Satyam better than it has handled other events. Satyam damage need to be contained not controlled. That means the guilty need to be punished and set an example of but others (other companies) need to come out clean. It's not government's job to declare them clean but in their self interest to come out clean through audits etc. I know this will be difficult (do you think Satyam was the only one cooking the books)

    I wouldn't necessarily state that we are in better position than China ... simply different position. If government manages to handle economic recovery correctly such as central infrastructure planning, encourage domestic infrastructure building (not unregulated housing), modernize the industry, tax breaks to companies who spend on R&D, improve quality of education (generate business leaders... not coders), digitize the country we will come out much stronger than before.

    India has lot going for it. Savings rate is high, PMs are traditionally revered, had leaders such as Y. Venugopal Reddy (I want to touch your feet sir). Many know Tendulkar & Dhoni... know who is this guy and how he has saved us from financial mess. Send him some flowers. We are in better position because of things I mentioned above plus highest % of fertile land, large sea coast, mineral reserves etc. We have done very well in last 62 years (will write about it some other time) but we have a long way to go. Outlook in next 5 years though... specially for RE... NOT GOOD.
    CommentQuote
  • Dont forget Politicians

    I agree that India is good but not the politicians. They have spoiled the country to the Core. There are many step that GOVT should take to save India. But due to the VOTE BANK Indian politicians are not doing so.

    Sab Chor Hai !!!
    CommentQuote
  • Originally Posted by arin_12
    I agree that India is good but not the politicians. They have spoiled the country to the Core. There are many step that GOVT should take to save India. But due to the VOTE BANK Indian politicians are not doing so.

    Sab Chor Hai !!!


    sab chor hai,thats why they will do everything to save RE where their biggest chunk of 'chori'(wealth) is lying.

    the builders holding in RE will be minscule compared to the politicians holdings which would never come for distress sale.
    Dont forget the politicians
    CommentQuote
  • Govt., took a political decision through RBI to allow Banks Real Estate NPA assets to restructure, allowing more time to developers to go bankrupt. Today Govt. has decided to infuse nearly Rs 4000 crore in Public Sector Banks to improve their capital situation. More will follow after election. I think, this is just the tip of the iceberg. Expect Banks and Developers to go bust big time.
    CommentQuote
  • Originally Posted by UscoKumar
    Govt., took a political decision through RBI to allow Banks Real Estate NPA assets to restructure, allowing more time to developers to go bankrupt. Today Govt. has decided to infuse nearly Rs 4000 crore in Public Sector Banks to improve their capital situation. More will follow after election. I think, this is just the tip of the iceberg. Expect Banks and Developers to go bust big time.


    You are 100% correct. As we all knows that the politician and the builders are the 2 opposite side of a same coin. These politicians are trying to give some bail out package/low int rate/fund to the RE sector to keep them alive. You can see the development will be happening only on those area where all the politicians have land nor those place where the people will get benefit.
    CommentQuote
  • Originally Posted by arin_12
    You are 100% correct. As we all knows that the politician and the builders are the 2 opposite side of a same coin. These politicians are trying to give some bail out package/low int rate/fund to the RE sector to keep them alive. You can see the development will be happening only on those area where all the politicians have land nor those place where the people will get benefit.


    correction! politicians have land everywhere.their purpose is just to put their money they are not worried about returns.they even pay a % to benamis to park their funds
    CommentQuote
  • tell me guys whom to believe???
    check this out at utvi. all accepted 'experts' with 'fantastic' explanations to back up their predictions .
    still no consensus on prediction. so dont believe these'experts' and their stats.

    all BULLSHIT


    NEW DELHI: The IIP figures are expected to rise by 1.3% in december vs 7.96% (YoY) according to a UTVi poll.

    *Output growth fall in December as firms cut production to clear inventories
    *Expected to remain muted as a sharp decline in demand hit manufacturing and exports
    *Slowdown to be led by weakness in electricity output growth
    *PMI measure of manufacturing activity, fell to a seasonally adjusted 44.4 in December
    *PMI seen fourth successive fall that took it to its lowest level since the survey began in April 2005

    Dec IIP POLL

    Institute of Economic Growth +3.2
    CMIE +2.5
    Crisil +2.0
    ICICI Securities +1.6
    Bank of Baroda +1.5
    IDBI Gilts +1.4
    Indicus Analytics +1.1
    Yes Bank +0.8
    HDFC Bank +0.2
    Nomura -0.3
    Standard Chartered -0.6
    Axis Bank -1.7
    Median +1.3
    Average +1.0
    Highest +3.2
    Lowest -1.7
    CommentQuote
  • CHECK THIS OUT.NOT VERY BAD IS IT @http://www.msnbc.msn.com/id/29117073/




    The IAS360™ summarizes median house price trends and appreciation or depreciation occurring monthly within 360 US counties, 9 US census divisions, 4 US regions and the nation.


    Learn more about the IAS360 House Price Index:
    CommentQuote
  • Industrial production is down to -2.0% from previous year of over 8.00% plus. Indian Govt. has exhausted all possible means, to correct unprecedented economical situation. Govt. do not have money. They have already allocated money in their popular programs. Real Estate situation is further worsen current Indian economy.
    CommentQuote
  • The most respected index today is the Case-Schiller one

    Originally Posted by abk
    CHECK THIS OUT.NOT VERY BAD IS IT @http://www.msnbc.msn.com/id/29117073/

    Abk,

    Do you have any idea what 20% fall in median prices across top 10 or 20 cities in US means? It means Trillions of $$$. Which is many times the entire output of India in a whole year today.

    20% of a person's salary might look small. And maybe you are comprehending this US-wide drop in a similar way. But every 20% is not the same as every other 20%.

    This is VERY, VERY BAD!!! It is so bad that it has never been badder in the history of the modern world. Please note that the last time around it took the US 25 years to recover back to where they were in 1929.

    In the case of Japan in 1990, it is still going strong 19 years later. The Japanese Nikkei hit 39000 in 1989. Today it is around 9000 after falling briefly below 8000.

    To give you a comparison, can you comprehend what it would be like if the Sensex went down to 4800 and stuck around for a long time to come. This was slightly above what it was in 1992 during Harshad's time.

    Can you even remember the state of this country then? We were on the brink of sovereign default about an year earlier than that.

    Try and understand. Statistically it may look "not so bad". In reality it is shaping up to be a disaster which will be very very painful to all of us in the longer term going forward.

    Don't think I'm simply exagerating.

    cheers back to where they were in 1929.

    In the case of Japan in 1990, it is still going strong 19 years later. The Japanese Nikkei hit 39000 in 1989. Today it is around 9000 after falling briefly below 8000.

    To give you a comparison, can you comprehend what it would be like if the Sensex went down to 4800 and stuck around for a long time to come. This was slightly above what it was in 1992 during Harshad's time.

    Can you even remember the state of this country then? We were on the brink of sovereign default about an year earlier than that.

    Try and understand. Statistically it may look "not so bad". In reality it is shaping up to be a disaster which will be very very painful to all of us in the longer term going forward.

    Don't think I'm simply exagerating.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Originally Posted by abk
    CHECK THIS OUT.NOT VERY BAD IS IT @http://www.msnbc.msn.com/id/29117073/

    Abk,

    Do you have any idea what 20% fall in median prices across top 10 or 20 cities in US means? It means Trillions of $$$. Which is many times the entire output of India in a whole year today.

    20% of a person's salary might look small. And maybe you are comprehending this US-wide drop in a similar way. But every 20% is not the same as every other 20%.

    This is VERY, VERY BAD!!! It is so bad that it has never been badder in the history of the modern world. Please note that the last time around it took the US 25 years to recover back to where they were in 1929.




    Try and understand. Statistically it may look "not so bad". In reality it is shaping up to be a disaster which will be very very painful to all of us in the longer term going forward.

    Don't think I'm simply exagerating.

    cheers


    Wiseman my point here is simple if with the US financial institutions in a mess and other crisis the RE has not crashed as you predict by 80% even in US the centre of the crisis.
    then India should have a relatively lesser correction than US in RE and chennai where housing buyers are actual users and less speculators and 'soft launches' like in b'lore and mumbai are not done in chennai,the RE mkt in chennai would not crash to the levels you predict.

    Wiseman my point here is simple if with the US financial institutions in a mess and other crisis the RE has not crashed as you predict by 80% even in US the centre of the crisis.
    then India should have a relatively lesser correction than US in RE and chennai where housing buyers are actual users and less speculators and 'soft launches' like in b'lore and mumbai are not done in chennai,the RE mkt in chennai would not crash to the levels you predict.
    CommentQuote