I was just going through this headline in economictimes website "Stocks fall on US, China economic news" and I was wondering what is really happening in the world economy?

We see China posting slow growth (taunted to be the driver of world economy) USA still crawls, UK's debt mounting all the time and whatever our politicians say India is no better. Because I myself and my friends experience the difference of the present time and time we are flooded with offers in 2007. I can tell you one of my friend who has an experience of 5 years and working as a relationship manager is finding it very hard to even schedule a prospective interview for himself. And the hikes that are announced by most of the companies are only in paper's or in peanuts.

On the basis of current situation I'm actually wondering about two things about India.

1. The stock market keeps on rising - This increase is may be due to the fact that FII's are pouring in money. But china being a FII's darling has seen their stock market value coming down. But that does not seems to be the case with India. Is Indian stock market rising just because of FII's or Indian public is investing in stocks? Or Is India really immune?

2. Real Estate - I have heard and seen in most of Tamil Nadu that land prices have stagnated or have come down in a very few areas, but in most of the cities and towns the sellers are quoting those absurd prices with no takers, but still the sellers or hanging on to the price. Where it is all going to end? Will RE as whole (flats, land) survive this period or the imminent depression predicted by economists like Paul Krugman will sweep the world and India.

I would like to know your thoughts on it. I know there are people in this forum who say the RE is going to rise all the time and there people who say the RE will go down in short term. Let's see what we can get out of this thread?
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  • i'm finally happy to see someone wondering like me.,i'm in U.S. i always wonder whenever cnn keeps updating the economic and real estate news and they keep saying that the u.s trend in real estate has already happened in japan in early 90's. and the real estate need to hit another bottom in prices which is scary. bottom line: what goes up(abnormally) must always come down, which is not happening in india. are foreclosures happening in india where people have bought flats for 50 to 80 lakhs and cant hold it paying the mortgage with these inflation? again wondering..............................is india "real estate bust" proof ,"recessions" proof ,unemployment proof? need the honest opinions...
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  • My take, The economic divide in India is there to stay and will only widen even more.Primarily due to the reason, the growth is concentrated on certain sectors and still export/FDI/FII driven.

    Contrary to what I want, We seem to be losing out on a once in a century opportunity when we could explore the domestic demand and market to create world-standard brands,distinguish our identity,explore avenues to drive the global economic scenario by creating jobs and opportunity within rather than trying and fuelling developed countries to their recovery so that we can start getting business from them again.

    Inflation and rupee fluctuation will ensure more have-nots are produced in India with each percent of growth registered every year.

    If God forbid, India Shining story turns out to be a mirage. I strongly feel its in the personal interest of every individual to make responsible investment decisions and career choices to ensure they consistently remain on the upper strata of the society and not become one among the lost generation.
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  • Originally Posted by bmohan
    i'm finally happy to see someone wondering like me.,i'm in U.S. i always wonder whenever cnn keeps updating the economic and real estate news and they keep saying that the u.s trend in real estate has already happened in japan in early 90's. and the real estate need to hit another bottom in prices which is scary. bottom line: what goes up(abnormally) must always come down, which is not happening in india. are foreclosures happening in india where people have bought flats for 50 to 80 lakhs and cant hold it paying the mortgage with these inflation? again wondering..............................is india "real estate bust" proof ,"recessions" proof ,unemployment proof? need the honest opinions...


    Good to see a like minded guy :). Mohan, as far as i know the sales of flats in chennai is stagnant for the past 1.5 years. Even couples with no children but with 1 lac earning per month are scary of booking a flat at this time. But, this has not brought the developers on their feet. They are trying to hold the property as long as possible, even by getting more debts.

    One more scenario is in US people are losing jobs but in India the scenario is it is difficult to find a new job and the people who are currently working have only seen a minimal hike or in some cases reduction in salary but, they are not fired. Now, there is generally a feel good factor in IT that the revival is happening and it is gonna pick. When this hype doesn't turn out to be a reality then all hell will broke lost. Just my guess.

    Thanks,
    Sridhar
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  • Even I am also in the same boat. I am waiting for prices to come down.My biggest worry is about my cash savings. i don't know how Inflation is going to kill my savings in the long run . Another thing what I am seeing is Govt people , after 6th pay commision, all the govt employees are getting salary like IT people.what ever worst happens in future , Govt cannot lay off people or reduce their salary.I don't think prices will come down drastically.Max what we can expext is 20-30% correction and some big correction in luxurious / big ticketed segments.But still it is good amount.Again our people are stilll crazy about RE , that is the reason every one is betting on India & indian RE .
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  • My take ...

    Sridhar and others,

    For around 26 years the world was on a Debt piling binge never seen before. The US was the leader in this. Conservative economic theory was thrown in the dustbin and the ultimate statement was made by the NeoCons in the US (Bush's coterie) that "Deficits don't matter" and "This time its different".

    Today, just a few short years away, the world is realising that Deficits do matter, that like always in history, this time it only appears different and that, like Japan (which is still in recession/depression 20 years after their own debt binge) the world too will have to suffer the consequences of too much debt.

    So, the world has swung into what looks like a multi-decade deflationary decline which could go on at least upto 2020 or so people think. In the past, such declines have even gone on for over 60 years!!!

    While people look at all this in the short term and think we will return to "normal" life like it was before 2008, there is high probability that the world will enter into a rather sharp and steep depression which could take many years to come out of.

    Why deflation? Because we have already built too much of everything and do not seem to have the ability to sustain the lifestyle we think is normal today. As a simple example, the one-time swing of jobs seeking lower prices is now leveling off. The kind of salaries it has created due to stupid Govt interference (tax holiday long after its need makes IT companies slothful and raises salaries much higher than it should be; high debt levels in Western countries raises liquidity to high levels encouraging them to spend unneccesary amounts of money on offshoring which, in the long run is not sustainable).

    The impact of deflation is a gradually contraction in value and an inability to sustain our extravagant lives (taking out the SUV to go half a km down the road to buy half a kg of potatoes). The complication this time is the looming shortage of resources - Food, Minerals, Oil, and Energy - to cater to the enormous population.

    This depression will see an enormous amount of "wealth" created in the last 25 years just disappear when prices come down and stay down for long period of time. It will affect various countries in various ways.

    Countries in the West, which embraced this form of "Growth" will be the most affected. There will be monumental adjustments in lifestyle as its already being witnessed in the US and Europe. Countries in the East will be less hit because we never went to those levels of stupidity.

    Even in the east, countries like India, which was almost completely cutoff from world trade till the 90s, and which has a large domestic comsumption, will fare the best as we are already doing well with just a reasonable level of growth. Countries like China, which has over 45% dependence in exports to the West and has created its own, highly imbalanced bubble, is expected to also suffer severe recession/depression in the coming years.

    There will, nevertheless be great volatility in prices of everything (and great opportunity) and a long period of low growth in everything (salaries, prices).

    As a result, there will also be a high probability of world-scale (or t least regional-scale) war, since almost every global depression was followed by a major series of Wars.

    Stayng in cash, buying assets only when great bargains are found, living within your means, saving a lot of cash and maintaining core skills that will be in demand in the market are the things you need to do to sail through this period relatively calmly.

    RE
    Coming to RE, if you are thinking RE in the US, simply hand over your cash to the needy and you will do better. If you are thinking about RE in India, while most people think RE will not only stay strong but also rise strongly, I think it is already in stagnation and the recent price "rise" is only a trick by builders and that "real" rates (as Real has already mentioned in another post) can be brought down significantly 20-30% if you are a serious buyer. If this was a genuinely strong market, such discounts would not be possible. Also, builders are now desperate to go in for IPOs at much lower prices than they hoped for last year.

    If you are buying to stay and have put down a significant down payment and have bought in less bubbly areas, and have the ability to cover your EMIS comfortably, then you will be okay. Otherwise, expect to see some volatility in your financial life when the home becomes a stone around your neck sometime in the medium-term future.

    cheers
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  • unbelievable

    Wiseman has posted a few jokes before but this one tops it all.

    Deflation !! ...does he not read the papers or watch the news ?

    In India people are taking to the streets on the oil price rice, food price rise...the PM has made a statement conceding that the prices will rise for a while
    In the UK the VAT rise coming up beginning of next year will push the inflation up from its present 3.5% (which, based on historical data is already high) ...

    Interest rates are set to increase n most countries.

    I agree with the general uncertainty in the market...but however eloquently someone say 'deflation' can't buy it...
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  • Wiseman got Krugman for comapany

    Originally Posted by sri_idea
    Wiseman has posted a few jokes before but this one tops it all.

    Deflation !! ...does he not read the papers or watch the news ?

    In India people are taking to the streets on the oil price rice, food price rise...the PM has made a statement conceding that the prices will rise for a while
    In the UK the VAT rise coming up beginning of next year will push the inflation up from its present 3.5% (which, based on historical data is already high) ...

    Interest rates are set to increase n most countries.

    I agree with the general uncertainty in the market...but however eloquently someone say 'deflation' can't buy it...



    Seems wisey is not alone on deflation. See what Krugman says

    http://www.nytimes.com/2010/07/12/opinion/12krugman.html?_r=2&partner=rssnyt&emc=rss
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  • Originally Posted by Srinidhi
    I am waiting for prices to come down.My biggest worry is about my cash savings. i don't know how Inflation is going to kill my savings in the long run.


    Hi Srinidhi,

    Inflation will ensure your saving will become peanuts.

    The sooner you invest your savings (That is not required in the short term) in to growth assets such as quality shares and real estate the better it is.

    The longer you have the funds as cash in the bank the less worthless it will become.

    As you said the pay rise is not only IT sector, the government 6th pay commission has ensured (Indirectly) increased wage is spread in all sectors.

    Can't even get a old house watchman for less than Rs 6,000.

    The population growth and lack of land is also adding to the demand.

    Well, If Investing can be risky than not investing is equally risky.

    Asset price inflation in India has very bad track record of spiking very high in very short time frame.

    Before you know it that quality property is out of reach and you may have to settle for less at an inferior asset.

    You repeat the famous dialog " That property was selling for only xyz two years ago but now........"

    I know a friend who said 15L for a ground in Medavakkam was way too expensive 4 years ago and he will wait for a big correction, well four years on Medavakkam is now over 40L.

    He still has about 18L in the bank and now looking at far away inferior places and still awaiting a price crash there.

    One can wait,wait and wait till there savings are all eaten by inflation and worth zilch.
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  • RE won't go anywhere

    Thank You Economist for your comments .

    This is my stand :

    I am going to forget chennai and other metros for some time especially 50L+ properties .I don't think these 50L+ properties will get double in 5 or even in 10 years , since income - EMI ratio doesn't match .Builders are playing tricks to keep the prices of these kind of properties since their profit is very huge on this segment.It is going to get a very big hit in short to medium term , it may take even some years based on how G20 is reacting for this GFC .I am an NRI and I am looking for some decent plot / house which I need only when I return to India , Basically I am from southern part ,even In my home town RE went up multiple times , but still in the range of affordable level to the people who lives there , our home town is mainly driven by govt employees / local people who spend less and save more .You can still buy plot for 1 or 3 lakhs per ground in outer areas (inside the town they are quoting 20L - 30l per ground which doesn't make sense to me).Now a days any one can afford 1-3 laks rupess which I feel is the great investment(since we don't have any other better option) for this time and give good return during these inflationary times as Economist said because we have enough space for appreciation .And also we don't need to go for loan for these kind of amounts.I have already invested a lot in my home town during 2000- 2006 and the prices went up multiple times , even if it doesn't make sense , I personally happy about that .I am still waiting with some good amount of cash to buy 50L+ property in chennai which is only for living purpose which I am personally feel is going to take a big hit , because no one can justify this price level , it is really un affordable to any one , tell me who can buy a plot / house for 60 - 75 lakhs with cash / loan during this GFC (may be businessmen,doctors and politician and whoelse?) ,
    I am planning to wait with Cash as wiseman said for atleast next two years , if nothing got changed , I will go and buy my home town 1-3 lakhs properties (may be for 4-5 lakhs after 2 years) and get into the RE bus .I am pretty sure RE won't go anywhere atleast for next 2 years .
    Please feel free to correct me If I am missing anything .
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  • contradicting but logical facts

    I see two contradicting but logical facts from economist and Srinidhi. Economist seems to be very optimistic and Srinidhi seems to be cautious.

    economist - I agree with your logic that the money kept in FD will come to peanuts in long term. The general perception is everybody wants to invest their hard earned money but, the dilemma Is this the right time to invest? Yes, the 6th pay commission has indirectly increased the wage inflation but, how long the private companies keep increasing the salaries in this volatile market? If that happens India for sure will lose it's wage advantage to other asian countries. When the salaries are not going to keep increasing near term, how will the RE prices alone can increase? And look at the return you get as rent on the flats you invest, a 50 lakh flat in OMR can fetch you a rent of Rs 13000 max (I have flat here in perungudi very near to frontline hospital). But look at the EMI the buyer need to pay. Investment is always good but, the question is Is the time right now?

    Srinidhi - Even though your are an NRI I like your cautious approach. If all the people who fear that they will miss the RE bus had shown some of this caution the RE prices would have been affordable by now.
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  • Hi Sri,

    I was also a guy who was too much into data when completed my MBA. The first url is the reactions of economists from banks. You see in these times after 2008 I think their respective organizations have asked all these economists to always say "All izzz well" to the public and create the feel good factor.

    Personally I have stopped believing all these economists who predict booommm and the world bank reports. Most of them are short sighted and try only to create the feel good factor.

    Thanks,
    Sridhar
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  • Originally Posted by sridharchennai
    I see two contradicting but logical facts from economist and Srinidhi. Economist seems to be very optimistic and Srinidhi seems to be cautious.



    If all the people who fear that they will miss the RE bus had shown some of this caution the RE prices would have been affordable by now.



    you cannot change the mindset of the whole population.A Home is not just about returns and investment,it is about owning your space,prestige,envy and status and so many intangibles that you cannot quantify it in terms of returns and rent,
    First home buyers will not wait,maybe for awhile not for ever,
    come to think of it,despite all doomsday predictions rates have not fallen in the city and suburbs rather they have increased above the peak rate of 2007/8.many have missed the bus .....
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  • Originally Posted by abk
    you cannot change the mindset of the whole population.A Home is not just about returns and investment,it is about owning your space,prestige,envy and status and so many intangibles that you cannot quantify it in terms of returns and rent,
    First home buyers will not wait,maybe for awhile not for ever,
    come to think of it,despite all doomsday predictions rates have not fallen in the city and suburbs rather they have increased above the peak rate of 2007/8.many have missed the bus .....


    Hi abk,

    When a person is excess of cash then no price is too costly for him. As you said home is not always about investment but, when mistimed it can eat all your life of savings. That is where I'm concerned about.

    Well, the market has not definitely crashed but, even the bus has not yet started moving. It's still there stagnated.

    I have my flat in perungudi and I can tell you the prices are down from 2008 peak. I don't buy your argument of price rise based on my experience

    Thanks,
    Sridhar
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  • Originally Posted by sridharchennai
    I see two contradicting but logical facts from economist and Srinidhi. Economist seems to be very optimistic and Srinidhi seems to be cautious.

    economist - I agree with your logic that the money kept in FD will come to peanuts in long term. The general perception is everybody wants to invest their hard earned money but, the dilemma Is this the right time to invest? Yes, the 6th pay commission has indirectly increased the wage inflation but, how long the private companies keep increasing the salaries in this volatile market? If that happens India for sure will lose it's wage advantage to other asian countries. When the salaries are not going to keep increasing near term, how will the RE prices alone can increase? And look at the return you get as rent on the flats you invest, a 50 lakh flat in OMR can fetch you a rent of Rs 13000 max (I have flat here in perungudi very near to frontline hospital). But look at the EMI the buyer need to pay. Investment is always good but, the question is Is the time right now?

    Srinidhi - Even though your are an NRI I like your cautious approach. If all the people who fear that they will miss the RE bus had shown some of this caution the RE prices would have been affordable by now.


    well said sridhar.
    the problem is that the mad rush to buy home is still there.. even someone who just started earning or with a few yrs of exp is looking to buy.they just look at their current salary and if thers some flat/home in that price range without analyzing if thers is value for money. one of the main reasons one buys is that everyone else is buying or trying to buy. they want a so called own house even though 85% of the deal is from loan. other thing the young IT people have overlooked is that, as you become more experienced it will be difficult to get jobs. (even in a good economy).

    i agree with u on the wage advantages. the hike people get in India is very high. today even a US salary doesnt look great compared to india's salary. in the US people get hike in single digits.
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