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Will real estate prices crash?

Last updated: December 4 2008
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  • #11

    #11

    Re : Will real estate prices crash?

    Originally posted by wiseman View Post
    Folks,

    The question is at the end of this post .

    For a long time now I was wondering why is it that, while people appreciate what I'm saying, they are not really following the meaning of what it can do to them. I finally got it (I'm a bit slow ).


    US
    Just 2 months ago, the US financial system was very near collapse. Then Paulson of Treasury blackmailed Senate and Congress to give him (without any effective oversight) $700 Billion to bring back stability to the system and get credit flowing again. Well, as of yesterday, they have apparently doled out 3 TIMES that amount (without congress knowledge) and still the markets are clogged. Imagine $ 2 Trillion and no effect. AIG, which took $85 Billion to bail themselves out have gone back repeatedly for more and the total is now $150 Billion (20% of the total amount only for one company?). So, its quite safe to assume that the final tally for the bailout will be anywhere upwards of $5 Trillion!!! - thats 5 times India's highest annual GDP ever!

    US has lost 1.2 million jobs in the last 12 months (with half of that in the last 3 alone!). GM is nearing collapse (Deutsche Bank has already rated their share at $0, zero) and have threatened that if they too are not bailed out and have to shut down, job losses in the Auto sector will be over 2 million quickly - this can immediately throw the US into depression. Already US uneployment is at 6.5%, expected to go as high as 10% (thats 3 million jobs more to go). The Great Deprerssion saw a 25% unemployment rate in the US.
    cheers
    Hello Wiseman. I am slowly becoming your fan. If you are starting a member club, then let me be your first member.

    Anyway, regarding the latest news on this $700 billion bail out, looks like Paulson has backed out from buying the toxic mortgage bundles. Also if the US Auto industry is not bailed out, then we may shed another 1 millions jobs within a very short period of time.

    Comment

    • #12

      #12

      Re : Will real estate prices crash?

      Real estate is challenged?

      Recent election of US gave a majority win for OBAMA! Indians have a softcorner for OBAMA comapared to MACCAIN. But the truth is United States is hanging on cliff! Yes it needs a stubborn leader like Mccain to atleast postponed the death for America,OBAMA has soft skills which results in PETRODOLLAR CONFLICT.So how does PETRODOLLAR CRISIS affect Indians and its Realty.Obama speaks of saving USA by giving taxbreaks ,good medicare conditions,but America is in Jeopardy ,its dipomatic ties has worsen.
      Venezeula ,Iran and Russia has empowered together to open an oilexchange and sell them in Euros.Ultimately US can invade Iran or Venezeula ,do you think can it do with Russia?Not at any cost.At the present global financial crisis major economies like India,China and Japan are in trouble (NOT AMERICA).Because much of these economies has TRADE DEFICIT with America.If America starts to sink these economies dollar reserve and their past 5 decades wealth will be wiped away!!!.
      When there is weak dollar or any of the Proven oil reserves wealth country starts to sell oil in other than Dollar ,many small countries statrs to dump thier dollar reserve and follow EURO ,resulting in major economic crash in india ,china and japan.This is what GLOBALISATION has helped us to achieve.
      I assure even if Petro dollar crisis doesnt occur ,there are other major challenges still facing the American Government.They cant keep on lowering their interest rate,foreign currency will be restricted .Since its heavy consuming economy it affects the exports of china and Indian software exporters. Where massive number of job losses in the next 2 years.There is no speech of softening in real estate prices-YES,No softening but hard crash ,there seems to be uncertainity in world politics along with Petrodollar crisis.Good time guys,if you have any property sell them in few weeks-ofcourse who is going to be the buyer?Lets wait and watch!
      Cheers

      Comment

      • #13

        #13

        Re : Will real estate prices crash?

        Chennai realty not coming down?

        Originally posted by ks2071746 View Post
        The prices are down in Bangalore, Mumbai etc. In Bangalore, one can get a good flat at Rs. 2000-2200/sq. ft. In Ahmedabad also it is in the same range. But in Chennai, it is not coming down though it is also not going up either. What is the unnatural thing that is happening in keeping the rates for so long at Chennai ? Is it that the demand outstrips the supply or none of the builders want to reduce the rates.? Is there a cartel working here? Why is it so unnatural here in Chennai? I heard that in a project, the land cost is 1/3, the construction is 1/3 and the rest 1/3 is the profit margin for the builder? Is this true. If so, there should be substantial reduction in the rates, say upto 15% atleast. But this is not happening. One of my known builder says, the rates will come down for large builders and outer limit projects but not for small peojects in the city limits of say 8 or 12 flats etc. for which the lands have been bought at high prices and the rates may remain. I would like to know the rate in Tambaram East near Sanatorium for a decent new 3 bed flat the current rate per sq. ft. I understand it is about Rs. 3500/sq.ft. Is it a reasonable rate? our friends in this forum may please advise me. Thanks. K.Sivakumar
        Kindly do respond to the prevalent flat prices at Tambaram Sanatorium East area-is Rs. 3500/sq.ft. reasonable?

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        • #14

          #14

          Re : Will real estate prices crash?

          Originally posted by ks2071746 View Post
          Kindly do respond to the prevalent flat prices at Tambaram Sanatorium East area-is Rs. 3500/sq.ft. reasonable?
          Anything above Rs 3000 per sqft in chennai outer area is high in the present market.

          Steel prices are down by 30%. Labout cost also coming down due to no demand.

          Comment

          • #15

            #15

            Re : Will real estate prices crash?

            Originally posted by wiseman View Post
            Folks,

            The question is at the end of this post .

            For a long time now I was wondering why is it that, while people appreciate what I'm saying, they are not really following the meaning of what it can do to them. I finally got it (I'm a bit slow ).

            The reason is, while I'm coming from what the Global Economic situation can do to the Indian Economy and therefore the RE market, most people on this forum are mainly focused on the operational issues like location, price, etc. So, let me try once again in another way. Consider the evidence in front of you:

            US
            Just 2 months ago, the US financial system was very near collapse. Then Paulson of Treasury blackmailed Senate and Congress to give him (without any effective oversight) $700 Billion to bring back stability to the system and get credit flowing again. Well, as of yesterday, they have apparently doled out 3 TIMES that amount (without congress knowledge) and still the markets are clogged. Imagine $ 2 Trillion and no effect. AIG, which took $85 Billion to bail themselves out have gone back repeatedly for more and the total is now $150 Billion (20% of the total amount only for one company?). So, its quite safe to assume that the final tally for the bailout will be anywhere upwards of $5 Trillion!!! - thats 5 times India's highest annual GDP ever!

            US has lost 1.2 million jobs in the last 12 months (with half of that in the last 3 alone!). GM is nearing collapse (Deutsche Bank has already rated their share at $0, zero) and have threatened that if they too are not bailed out and have to shut down, job losses in the Auto sector will be over 2 million quickly - this can immediately throw the US into depression. Already US uneployment is at 6.5%, expected to go as high as 10% (thats 3 million jobs more to go). The Great Deprerssion saw a 25% unemployment rate in the US.

            US Base Money supply change y-o-y has only been this high 2 times in the past 100 years. The first time, it was just before the Great Depression. The next time it was just before World War II. So, where are we headed?

            EU
            UK is in serious recession. So are Spain, Ireland, Germany, Greece, Romania and a host of other countries. Many are on the verge of recession. It is expected that EU may see a recession/depression worse than the US.

            Russia and Satellites
            Russia's Finance Minister boasted in Jan 08 that if at all the US recession was to be blunted, Russia would form the buffer with their oil-assited economic boom. Today they are at the door of the IMF asking for over $ 200 Billion.

            Asia Pacific
            Japan has been in a recession for over 18 years now. The Nikkei is now at a level last seen in 1984! Australia has been very weak for over 2 years now. Singapore is officially in recession. The Asian Tigers have been badly wounded and are now licking their wounds.

            China
            Guangzhou - a major export hub in China has - over the past few days - seen an average of 130000 (1.3 lakh) people leave by train daily for rural areas, mostly one-way. There are many such cities in southern and eastern China which are wirnessing a historic shift in population from Urban back to Rural as thousands of companies close down and millions of people are losing jobs. This is blamed on the Global Recession.

            India
            The latest export figures show a DIP of 15% in exports last month. Much of India's economic boom was shown in the huge Foreign Exchange reserves of $325 Billion we had, which peaked 3 month ago. In just 2 months, we have lost $65 Billion (or 20%). That was not in our control since Foreign Funds were pulling out. But the last 1 month has shown that while Imports has risen from 33% to 43%, exports has crashed from 23% to 10% growth. In the process net outflow was $10 Billion. Here's the equation. With export situation only worsening, India would probably run out of foreign exchange in exactly 2 years (what was built up over 18 years will get wiped out in 2!!!). If that half of happens, there will be chaos and growth will become negative!

            The last bastion of export strength is IT. IT (IMO) has been the backbone of RE buying in India and its the IT guys who are still gung-ho about continuing growth in India. Here is the latest update. Just 2 months ago, growth in global IT spend was said to come down from 6-8 % down to 3-5%. But growth it would definitely be, and so we are all safe said our IT leaders. The latest update? They are predicting now that it will no longer be reduced growth. There is likely to be a 5% negative growth in Global IT spend into 2009/10. Given that Global IT spend is north of $800 Billion and getting closer to $ 1 Trillion, we can safely assume that this global IT haircut will be upward of $65 Billion at least (maybe more). And you can bet on it that a lot of this haircut will come our way. Since we boasted that we dominate outsourcing (80% of global), let us assume that we will share at least 40% of the cut? Assuming outsourcing takes 25% of IT spend, we should see at least $6.5 Billion reduction in outsourcing, which is 15% drop in total exports of around $40 Billion.

            Coming to domestic IT outsourcing, that door too has been shut with yesterday's EcoTimes saying domestic IT is in reduction mode and will continue to be so.

            So, Varun, arun, ks and all the others. Given above situation as the best case what do you think a 15% drop in overall IT exports will do to jobs and salaries? Well, as far I can see, the best Net Margins in the Industry is around 15% - 20%. If we keep costs the same and let revenues fall 15-20%, basically the entire profits of the entire Industry will get wiped out. That cannot be allowed by managements. So, assuming that overheads (which has come down to 50% of total) takes a 10% hit affecting the overall drop by 5%, To compensate for the rest, employee expenses must take the rest of the hit. This gives us a figure of 20% drop in employee costs and this won't be smooth/even across the board.

            Varun, arun, ks, etc. Do you still think that salaries won't go down and jobs won't be lost? I still believe that job losses may even rise to around 10% to 15% of total Industry strength or even higher as global competition snatches away even more of our share of the pie as other countries will be even more hungry than us (we have not even factored this into this calculation). Also, with Obama coming in expect lots of jobs to go back to US. UK has already started shifting jobs back home significantly. Assuming IT employment of around 3 million or more, expect job losses exceeding 3 lakh people maybe even going to 5 lakhs. And the rest will see sharp salary cuts.

            Given the circumstances, do you really believe India will be the only country to see continuing growth through this crash? How? By going to niche markets. I pretty much covered the whole world. Where is this niche area you are talking about which can give India (alone) around $6 Billion in IT exports revenue?


            So, here are the questions:

            Given that at least some of this is true , (I have always been conservative in my estimates and reality always overshoots them)

            1. What would you now do with respect to real estate?

            2. How would this outlook now change your perception (if you accept it) and thereby, your actions going forward.

            cheers
            Excellent post!!!!!!!!!!!

            Comment

            • #16

              #16

              Re : Will real estate prices crash?

              Why Free Bees

              Why RE developer are offering free Bees without cutting the rate. The reason is they can free up the excess land that they have invested. And at the same time they can keep the price intact. If they try to reduce the rate then whole rate will start falling.
              Assume that Instead of giving a 2Laks Car as free they can reduce the per SQFT rate. Again if the developer buy car from a dealer in Bulk Auto Dealer will give much less compare to the Individual. Its just a way of luring the Customer. End of the day Developer expect you to pay the same.
              Either land or AIR and FOOD. Choice is yours.

              Comment

              • #17

                #17

                Re : Will real estate prices crash?

                Brings in the truth about real estate. The builders are making 33% profits and more. Last week I was enquiring prices in Seaward road on ECR, a km away from Tiruvanmiyur. Price of a Ramaniyam flat at 4cr for 3200sqft works at 12500 psft. If cost of construction were even as high as 1500psft and these older buildings the price would be at best 800psft, it means cost of land value is 11000psft. Now even if the builder was the cleanest he would have an FSI of 1.5, and most builders keep FSI at 3 and dont ask me about CMDA rules, they dont matter to them and even a chota builder can easily go to 1.65 to 1.8 times using sub clauses. So at 1.5 FSI , the price of land there should be 11000x1.5=16500psft. This means a ground (2400sqft) of land in Seaward avenues must be 4cr approx. I will love to sell land at that price, but if one were to try to sell land then the price offered will be around Rs 1.5 to Rs 2cr per ground. What a pathetic truth? That is because the buyers are again brokers who will give you such pathetic numbers and will actually sell at around Rs 2.5cr per ground, making a cool 1cr per ground investing NOTHING. Absolute Zilch. Then the realestate crook uses this investment to take it to 4Cr. That is great business.
                So any of you having sense will actually buy land. Even at 2.5cr there you will be able to build a bigger house than the 3200sqft flat for much lesser price. AND DONT FORGET IT. It is an independant house with you being the KING OR QUEEN.
                In net, realestate in India, in Chennai particularly has to crash for flats, remain stable or even rise for lands till stability is reached. So invest in realestate LAND, dont invest in realestate stocks.

                Comment

                • #18

                  #18

                  Re : Will real estate prices crash?

                  What happens that if something goes very high in a short period of time. It then falls also.

                  Same situation is being faced by Indian as well as Global Economy. But this is the good time for middle class or small buyers who dream to buy a home but their purchasing power didn't allow to purchase.
                  Definitely Indian Real Estate will again face booming situations but this will take some time

                  Comment

                  • #19

                    #19

                    Re : Will real estate prices crash?

                    Originally posted by ks2071746 View Post
                    Kindly do respond to the prevalent flat prices at Tambaram Sanatorium East area-is Rs. 3500/sq.ft. reasonable?
                    tambaram sanatorium 3000/- to 3500/- depending on the location. the land value there is 40-60 laks a ground/(2400 sq ft). check out chitlapakkam same price range but nearer to velachery road and camp road junction better accebility to shopping and education .if you need any help post me

                    Comment

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