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 abk
    Originally Posted by wiseman


    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.


    Dear friend,

    I agree. The rate of interest going down, likely to be around 7.5% by April 09, the Govt. likely to give further sops for RE, may induce stability in the RE prices and may not allow the prices to fall to further lower levels fast.
    One should not forget, the RE is driven by black money, the politicians hold so much of them and they will make the Govt. give sops so that those in the RE arena do not lose heavily in the RE investments they have made/holding.

    ks2071746

    ks2071746

    Dear friend,

    I agree. The rate of interest going down, likely to be around 7.5% by April 09, the Govt. likely to give further sops for RE, may induce stability in the RE prices and may not allow the prices to fall to further lower levels fast.
    One should not forget, the RE is driven by black money, the politicians hold so much of them and they will make the Govt. give sops so that those in the RE arena do not lose heavily in the RE investments they have made/holding.

    ks2071746

    ks2071746
    CommentQuote
  • http://www.news.yahoo.com/s/politico/20090211/pl_politico/18692

    http://news.yahoo.com/s/afp/20090210/bs_afp/financeeconomyuspoliticspublicaidbankinggeithner

    Geithner rescue plan fails to ease jitters

    The new effort also commits 50 billion dollars to prevent "avoidable foreclosures" of owner-occupied homes by helping to reduce monthly payments for middle-class families.

    I’m concerned that $50 billion to reduce foreclosures understates the amount that we will need, and we need some assurance that, assuming this works as we hope it will, there will be more money available,” House Financial Services Chairman Barney Frank (D-Mass.) said in a statement after Geithner’s speech.

    He also called the administration’s plans to release a “comprehensive” housing plan in the next few weeks “too much time,” urging financial institutions to hold off on foreclosures until Obama announces his housing plan.

    “Until housing is addressed in my state of Arizona, housing prices will continue to decline, and that creates a downward spiral which exasperates the recession,” said Sen. Jon Kyl (R-Ariz.). “You’ve got to stop that downward spiral.”

    ---------

    None will be knowing the extent of "unavoidable foreclosures" .

    Need to check where our members get the data on US RE and give a wrong signal to our guests .

    No wonder if our Indian RE promoters/brokers get into US RE & predict appreciation of 200-400 % ?

    Cheers
    CommentQuote
  • Originally Posted by sethugm
    http://www.news.yahoo.com/s/politico/20090211/pl_politico/18692

    http://news.yahoo.com/s/afp/20090210/bs_afp/financeeconomyuspoliticspublicaidbankinggeithner

    Geithner rescue plan fails to ease jitters


    Need to check where our members get the data on US RE and give a wrong signal to our guests .

    No wonder if our Indian RE promoters/brokers get into US RE & predict appreciation of 200-400 % ?

    Cheers


    sethugm check the thread the data is not by a broker
    the source is given and it is not by a nobody.
    @http://www.msnbc.msn.com/id/29117073/

    i am pasting it for your information.
    if this is unreliable then so is yours a qoute by a senator
    a politician of all the people to take one's word.
    sethugm dont belittle anybody here.
    CommentQuote
  • Once again. The Politician & Black Money bogey ...

    Originally Posted by ks2071746
    Originally Posted by abk


    Dear friend,

    I agree. The rate of interest going down, likely to be around 7.5% by April 09, the Govt. likely to give further sops for RE, may induce stability in the RE prices and may not allow the prices to fall to further lower levels fast.
    One should not forget, the RE is driven by black money, the politicians hold so much of them and they will make the Govt. give sops so that those in the RE arena do not lose heavily in the RE investments they have made/holding.

    ks2071746



    In which case ks, where is the statistic on exactly how many of these flats in OMR, Velachery and other places in Bangalore, NCR and so on are bought and held by Politicians and those with black money. And what proportion is bought and held by the IT and other crowds.

    I find it funny that, when it comes to arguing about why prices will decline or what is the major factor on prices, I see everyone talking about the "newly rich" crowd of IT and others.

    On the other hand, when discussing about why prices will not decline on the same bunch of property, there is talk about politicians and black money.

    We need to settle this once and for all so that arguments do no flip and flop according to our convenience. So, are we all talking with any kind of data about these? Or is it just based on our past prejudices?

    I believe that, before the land is developed and sold off, it is cornered by the politicians and black money rich (largely with insider info and politican clout). They then develop and sell it off at ridiculous prices to the IT crowd.

    It is clear that the real demand in aggregate is by the IT and other crowd. The crowd that buys the original property and develops and sells it is basically the go-between and does not see it as long-term investment. It is basically an inventory to be disposed off at the best price as quickly as possible (even if the holding period is 1 - 2 years). So, when the end-user or end-buyer is fast reducing in numbers and capability to buy, I don't see how the go-between crowd is going to continue to buy at these prices and hold them for an unknown period of time to make an uncertain amount of profit.

    So, I don't see how all this stimulus is going to push prices and volumes up when the end-consumer is scared to death about the coming confusion and his/her job/salary in the near future.

    My pov.

    cheers the land is developed and sold off, it is cornered by the politicians and black money rich (largely with insider info and politican clout). They then develop and sell it off at ridiculous prices to the IT crowd.

    It is clear that the real demand in aggregate is by the IT and other crowd. The crowd that buys the original property and develops and sells it is basically the go-between and does not see it as long-term investment. It is basically an inventory to be disposed off at the best price as quickly as possible (even if the holding period is 1 - 2 years). So, when the end-user or end-buyer is fast reducing in numbers and capability to buy, I don't see how the go-between crowd is going to continue to buy at these prices and hold them for an unknown period of time to make an uncertain amount of profit.

    So, I don't see how all this stimulus is going to push prices and volumes up when the end-consumer is scared to death about the coming confusion and his/her job/salary in the near future.

    My pov.

    cheers
    CommentQuote
  • The Chennai market vs Banalore market vs Mumbai market doesn't make a difference. Everywhere it is the question of who is the buyer. The buyers in this case are of 2 types, 1. Speculative investors and 2. Well off professionals such as IT crowd (Actual residents). The buying power of the IT crowd is certainly going to be constrained a lot if you are keeping your eyes on the news and economic indicators. That takes care of the resident segment of the market.

    Now let's look at the speculative investors. These guys are again of 2 types, 1. Black Money hoarders & 2. Actual white money. Let's just say, black money hoarders have many better places to put their money if the returns on investments in RE don't pay off. RE is also more difficult to hide than these other means of parking their money and certainly less safe. These guys are not here for the long term. They want to keep rotating their money so that they do not get caught. Look for their quick exit. Now the other speculative investors who have put their white money in the RE. Their goal was to also make a quick buck in the RE. If the RE prices fall, they have to move out quickly. Some of these investors (specifically NRIs) are already suffering because of 20% rupee appreciation viz-a-viz other currencies in the past 1 year. They would need to cash out because of the tough market conditions (loss of job, revenue etc). Even if they move today, they lost 20%. Do you think they will wait much longer to move out and chance loosing more money.

    Now coming back to the issue of government injecting more cash in the market. Do you know there are 2 ways of raising capital as far as government is concerned, 1. Taxes & 2. Print more money. Raising taxes would reduce the spendable capital for the people... bad for the RE. Printing more money has inflationary effect. So cost of living goes up and your savings become less valuable (again reducing the spendable capital for the people). Oh btw, if you want to find out what happens if government just keep printing money, look up pre-WW2 Germany or Zimbabwe. Government is caught between rock and a hard place. Spending money you don't have didn't work in USA, Europe, Japan or China. Why would it work in India?

    Now coming back to other issue of Interest rates. Reduction of interest rates has a negative effect on the foreign direct investments and has inflationary effect on the economy. Government is trying to make access to money cheaper by reducing the interest rates.
    It is like giving the alcohol to a recovering alcoholic.
    It doesn't work. Government can't keep the interest rates low much longer. We still need all the FDI we can get.

    There is not much politicians with lot of black money to hide or save their RE exposure can do about this. This mess is bigger than them.
    CommentQuote
  • Originally Posted by UscoKumar
    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.


    Dear friend,

    I agree.

    ks2071746
    CommentQuote