Monday, September 29, 2008

Buy your house - next year!!!

Since when did we start seeing these headlines. Now the original prophecy laid out in my original postings of the collapse of WAMU, Wachovia has come true, what do we expect next.
Based on today's 777 point drop in the DOW, I would expect the Sensex to hit 8000 fairly soon. We are at 12500 and the journey to 8000 should be swift and painless. Mumbai as a property market is dead. I think prices can easily drop 50% and rentals down 60-70%. Any apt which is quoting over 5k per sq/ft is not viable. If the developers have paid over 5k as their acquisition cost, they are the sub-prime of India. They have borrowed funds to acquire sub-prime assets and they will have to pay the price. Nobody in the right mind has 1cr to buy an apt in Mumbai, let alone other cities. I think the paradigm "Real estate never goes down in Mumbai" is now dead. Real estate has collapsed under the weight of the Sub-prime and the flow of cheap money, funded by unscruplous bankers. All the I-Bankers buying properties of 4-12 crores better find ways to find their purchases. The party is over, and the drunks are straggeling to get home. The Rahejas and the Hirnandani's now have to go back to the common people who were priced out of the purchase and if they don't drop prices, they can keep their apartments for themselves and their relatives or friends. With the implosion of the US banks, credit is weak. Amercians with retirement plans funded over the past 20 years are now bailing out to the safety of money market funds. How does Mumbai survive this huge gigantic iceberg. The real estate buildings spring up all over Mumbai will collapse like the Titantic and will remain unfinished if they are not sold at below market rates. Witht he media also harping on the slowdown, expect everyone except the diehard optimist, like Realtly rider and Ashish to keep buying properties and these folks deserve to have their money parted for a fool and his money will soon be parted. For the rest, lets keep watching the party unwind. It was a great run and an even greater drop. Gravity rules.
The time for buying in projects breaking ground or just starting has ended. With the collapse of credit, there is no way to know if projects will be completed and bills paid. This happened in the 80's where there were many unfinished buildings since the developer ran out of money. Whenever the time comes to buy, sometime next year and prices have fallen steeply, it is best to buy an property which is ready or almost ready. Project execution risk has too be taken out of the equation. With so many developers folding only the biggest and ones with deep pockets will survive. Everyone else will be road kill. As of now in terms of banks, there are only 4 major banks left in the US, Bank of Amercia, Wells Fargo, JP Morgan Chase and Citigroup. Citigroup had to be bailed out by the Arabs, so what is the guarantee that a company like ABC Constructions will survive in a fastly deteriorating market
DNA India reports.
A survey of brokers shows that enquiries to buy homes have fallen, with Mumbai registering a 90% drop. Brokers expect prices to drop soon.

The word is out on the streets. About 60 per cent of brokers expect prices in the Mumbai island city and up to Borivili to come down in the next year. Pranay Vakil, chairman of Knight Frank, global property, says he is also concerned about the volumes, which currently are 10 per cent of the sales recorded last year in Mumbai alone. “Prices are a function of demand and supply. But if volumes do not sustain, the problem will be greater and will bring the industry to a halt. Currently, only long term investors who have seen the ups and downs in the market are holding on.”

According to a pan-India survey of local brokers on the residential property market carried out by Edelweiss, global research analysts, almost 80 per cent of brokers across India have witnessed a reduction in enquiries over the past month and about 90 per cent of brokers in Mumbai have seen a drop in transactions over the past one month.

Hundred brokers in 20 micro-markets like Bandra-Borivili, Mulund-Thane, Gurgaon, Noida, Whitefield-Marathalli, Annanagar in the cities of Mumbai, Delhi, Bangalore and Chennai were polled.

According to Vakil, in order to increase volumes, developers will now cut down on quality in big projects. “In a total of 10 buildings, two will maintain high quality at a high rate, but in two he might offer low quality tiling in bathrooms and use it as an excuse to reduce his prices,” he says.

According to property experts, volume is driven by sentiment. If a buyer is sure of his ability to retain a job — essential to maintain a bank loan — he will go ahead and borrow money to buy a flat. “The situation is rather flexible. Apart from high property prices, high interest rates have cast a big question on the affordability of a flat purchaser these days,” said an equity analyst.

That the lack of demand and growing liquidity crises has developers worried was obvious at an informal meeting of 35-odd developers at a suburban five-star in Mumbai recently. With banks like Bank of Baroda, Bank of India recently announcing that they will not lend money against property, developers are worried about how to source funds for their projects. “The tightening money market has made IPOs redundant.

Venture capital funds have stopped lending and developers do not want to go to money lenders because of high interest rates of about 25 to 30 per cent. So, the only option is to either start selling faster by reducing rates (something they do not want to do) or curtail production which many of them have already started doing,” said a property consultant with a global real estate major.
According to Anuj Puri, managing director of Jones Lang Lasalle Meghraj, a global real estate firm, “Developers will have to reduce their prices if they have to beef up their quantum. I believe there is still a lot of depth in the market but at the right price. The faster the developers understand it, the better it will be for all concerned.”

56 comments:

Kannan Pothi said...

Vik,
You did a great job so far. As you said, we will just sit back and watch the party to end.... these guys almost made everyone as fools.

Anonymous said...

Sensex to go down by more than 1000points today. I think we are heading towards the 10k mark for Sensex.

Housing to lose 50% value in next 6months. There is going to be a bloodbath in India. Major layoffs are coming.

Sell now or lose money later.

Anonymous said...

The current market blow is not only limited to real estate sector but it has wide spread implications. The crisis started with real estate & now it has spread to other sectors as well. Currently the sub-prime is causing meltdown in US financial market. As the global economies are tightly coupled with each other developing & developed countries has forced into recession. By making a false claim Indian government gave a false assurance about the stable economy & now has relaxed the FDI norm for Pakistan as other global funds has dried up. This action explain only two things a
real real bad time ahead OR corruption.

Now what’s ahead, the current scenario can be imagin as 1998 recession & housing crash.

Prashant said...

Anon1, I wish the prices come down by half in next six months. Alas, people (speculators, builders, etc) will not lose their optimism that fast. So they will keep on holding. I would estimate 2-3 years for the complete drama to play out. I would expect at least 25-30% down next year (6-9 months).

I wish I'm proven wrong.

Anonymous said...

@Prashant

Builders/Speculators are no fools and they too depend on financial advisers. Most will try to cut their losses and the market scenario is likely to be reminiscent during 1996/1997. I expect the slide to start after Oct 30.

Anonymous said...

Just in a span of 9 months (Jan to Sept 30, 08). the stock prices of major real estate companies have dropped by a whopping 80% and the slide is expected to continue where as sensex has gone down by 33%. Helloooooooooooo, what does this indicate?

Those who have booked apartments in unfinished projects in Mumbai, better watch out. It is highly unlikely that the small/medium sized builders will keep/can not keep their commitments. banks/Govt have already started treating these builders as lepers and these guys are scrambling from pillar to post to raise capital to finish the 90% completed projects. Projects which have not reached near completion are likely to be abandoned.

tcofbg

Anonymous said...

I am still seeing ads in sites like magicbricks.com advertising apartments in bandra(west) for 20K/sq.ft,
malad/kandivili/borivili at 7.5k/sq ft. etc etc. Most of this ads are fake and their only message to house hunters is to show market is still vibrant

Anonymous said...

Not surprisingly the tone and content of the comments on this blog have not changed over the last one month since I last participated. The active participants are still awaiting a 30-50-60% crash !!

Yes, ML, Wachovia, Lehman, BS and WAMU are all gone. All this despair will still not result in a crash. Someone pointed out in the last comment on this page that Bandra is still quoting at Rs.20K but it is all fake! So this person thinks that someone is actually paying advertising dollars to put out an ad which has fake information!

Pl visit my redesigned website at www.meridharti.com. You can now get all the news in your email inbox by just subscribing. This also includes interviews with leading RE personalities and info on new launches. Very soon, we will expand this section.

Regards,
Ashish
www.meridharti.com

Anonymous said...

Ashish,
Thanks for coming back to defend your position. You can be an ostrich and stick your head in the sand, however there are many other rational people who see reality little differently. These are the people who have regular jobs in professional organizations, have a bachelors or a higher degree and are not gamblers, corrupt officials, politiicans, goondas, bhai's or black money changers. These are the people who you would like to be your average neighbor, but owing to the real estate mafia they are unable to afford one of the basic needs in life. Life has come full circle in the US and Europe. The Tsunami is hitting India and will wipe out all the leveraged players and hand back keys to the people who need and own it at reasonable prices. It is not hard to think of a day when 20k is down to 10k and 10k is down to 5k. We need patience and that is what is in short supply. People like you are either Old money rich or stooges of the builders. You have a vested interest in trying to pump up prices. However time is on our side. Until then.
Vik

Anonymous said...

In my last comment also I mentioned that market lag by around 3 months to reflect the economic event. So don’t expect sudden price fall in real estate prices, the prices are not transparent like stock prices.
The magicbricks web site have a auto update functionality set by some programmer like us which updates the past dated ads if the ad is not removed by the advertiser. For an example in pune residential search you will find an ad by “Office 1 & 2 ,Venus Nook,Divya Nagar Wanwadi-40 Kondhwa,Nibm, ” this ad is there since last 6 months but magicbricks will display edited on today’s date. It only indicates that there is no buyer & Agent is sure even after updating it he will not get any buyer.

Anonymous said...

Please do not visit www.meridharti.com, the site have virus. After visiting this site I forced to format my hard disk to get rid of virus.

Anonymous said...

Ashish,
You are a shameless creature masked by greed and crookedness.
If you don't know what you are talking, you should listen to others, if not just shut up.
Bloody idiot, screwing up naive people of their wealth.

thinker said...

Japan bubble burst. We need to learn what happened. VERY useful.

http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?ei=5090&en=32ab31a39ab94fe6&ex=1293166800&adxnnl=1&partner=rssuserland&emc=rss&pagewanted=all&adxnnlx=1222840803-407hjGjqeR07y7nUVfOIRw

Observer said...

I think one of the biggest problems in India is that data collection is quite primitive. Unlike developed countries like US, Japan, Euro region etc, there is very little transaction data available publicly. I think this makes the real estate market in India very inefficient and opaque, since both builders and buyers are not able to settle on an efficient pricing model.

I believe this will continue to be the case for the foreseeable future, since making transaction data public may expose many politicians and other tax-evaders. Hence naive buyers and small builders will face the most problems in the Indian context. Until we have government data to back up claims, it will not be possible to win any arguments on here.

Realty Rider said...

The Supreme Court has taken a view that the right to property is now a human right. Referring to several landmark decisions passed on the law of adverse possession of property, the Bench comprising Justices, Mr. Dalveer Bhandari and Mr. H S Bedi noted, "The right of property is now considered to be not only a constitutional or statutory right but also a human right." The bench said the Central Government should consider a change in law to prevent squatters from dishonestly enjoying property.For more view- realtydigest.blogspot.com

Anonymous said...

There is going to be tremendous destruction of wealth both at dalal street and then hitting the main street. It is just a matter of time. It will take sometime to get people out of denial mode and understand the reality.

Anonymous said...

@ observer
real estate market in India very inefficient and opaque, since both builders and buyers are not able to settle on an efficient pricing model.

I disagree with this statement.

The pricing model is simple. In the case of mumbai the ratio is 60:40::white:black. Even publicly traded companies wont negotiate with the potential buyers unless the black portion is settled first. Unlike olden days, cheque payment is accepted for the black portion. This is one of the reasons why banks have not felt the heat of real estate meltdown as even a 50% reduction in apartment prices will not reduce the value of mortgages they are holding

Intervention by the government is the only way that can make a common person to afford a apartment in cities like Mumbai

Observer said...

I was not referring to the breakup of the white/black components of the housing prices. I was referring to the total house price itself based on supply/demand characteristics.

For example, in Japan, UK, USA and maybe other countries, each transaction is recorded at the Govt office, and portions of the sale deed, including the location, sale amount, appraisal amount, number of liens (first and second mortgage if applicable), square footage, and date of sale, are all available to the public. All transactions are thus logged by date, and the total inventory of houses is also updated. This provides a clear picture of the number of transactions, amount of transactions, previous history of appreciation/depreciation, per-square foot pricing history and many other metrics that can be compared to others in neighboring locations.


This data is collected by many real estate firms, mortgage brokers, banks, other lenders, and data mining companies. They cross-relate this with census data which includes average household income in that area, and the equivalent rents in that area.

This provides both buyers as well as developers/sellers to come up with a sense of how the real estate market is faring. To know clearly if a certain micro-market is overvalued compared to historic norms, and by how much. After all, luxury homes still seem to be selling by anecdotal evidence, so that micro-market must be doing well.

It would allow developers to figure out realistically how much buyers in a certain area could afford, and develop suitable accommodation. Thus, it is good for both buyers and sellers.

As I said earlier, in India the above cannot happen because of probable political involvement in many land transactions. Thus, each side is forced to depend upon anecdotal evidence to come up with a pricing model. Developers look at the IT industry and come up with some pricing, while not knowing exactly how many can actually afford those prices. They keep hoping that there are more, and are afraid of lowering prices in case they lose the chance to make a profit. And buyers do not know if the developer is ripping them off, or is there really enough demand to sustain those prices.

Since the transaction volumes are not known precisely, each side is guessing, which can result in a stalemate. The end result is that capital lies idle with the developers/sellers, and the buyer puts his/her life on hold while this issue is sorted out based on anecdotes.

sabbalseshu said...

Don't expect a real estate crash, for it is unlikely to happen
Reasons:
In Mumbai real estate funds crime, terrorism, corruption & inflation.
Here is how it works.
1. Income which is not declared to the government is known as black.
2. Businessmen invest this black money and generate more.
3. Thus in a city like Mumbai, 50% of the business transactions take place using black money and this is where the builders/real estate come in.
4. Builders also amass black money, but unlike the other black businesses they have to pay a fair share to:
a. Govt(Politicians) and income tax officials
b. Gangsters for protection and intimidation
c. Sub contractors who demand part of the money in black
d.Buying foreign money for deposit in their accounts in Europe
This is a vicious circle. Our economy works this way.
Turmoil in stock market hasn't affected the underground economy much. Persons having 100s of crores can afford a downward trend in economy. Also note that the living standard of some fabulously wealthy people is no more better than a wage earning persons. These communities( eg. Marwari) whose aim is to compound wealth, without actually using it.

Shailesh said...

sabbalseshu: Do you own business?

I am from so called Business community in Mumbai. Most business people do not have ton of cash lying around as you speak of. Majority of businesses now require much large capital. Only few have lot of money, but that percent is very small.

The large portion of RE bubble was not due to business folks, but due to salaried folks (esp. IT) getting large bank loans (85% LTV was unheard of before) , which was not the case previously.

Anonymous said...

sabbalseshu , every time gave the same BS of black money. In last comment also he gave big sermon on black money. He walks on black money he eat black money, he roll on black money and what not ……..
You don’t know how much black money I have, I can stabilize the whole real estate market -:) lol

Anonymous said...

Looks like this Sabbal is either a gangster himself or working for one. He has no knowledge of the plight of common person.

I bought a flat in Mumbai suburbs in 2006 without paying black. Due to increased EMI and job uncertainty, I am spending sleepless nights. Now the flat is in the market and real estate people are coming up with ridiculous offers. They don't even cover 50% of the money I paid.

There may be many like me living in constant nightmares. My advise to youngsters - do not buy something based on real estate agents advise for it may turn out to be a noose around your neck.

I have to blamme myself for the greed as I dont see an end to the dark tunnel I entered

Shailesh said...

Who do you want to trust Mr. sabbalseshu or Wharton?

Indian Real Estate Firms Face a Reality Check

In addition to housing stocks, home prices are taking a beating. By some estimates, prices have dropped by 25% in certain urban markets.

Real estate investors in India were also worried that Lehman might resort to a fire sale of its assets. While India has a three-year lock-in period for foreign direct investment (FDI) in real estate, it is unclear whether this applies when a company declares bankruptcy. The government is holding a meeting to decide the norms in such cases. The other issue is that Lehman holds small stakes -- bought from the market or in bulk deals -- in real estate and infrastructure companies such as IVRCL Infrastructure, Consolidated Constructions, Orbit Corporation and Vijay Shanti Builders. Here, too, there was the possibility of a fire sale, encouraging other investors to bail out.

Understandably, defaults on loan repayments are increasing. While specific numbers are hard to come by, bankers say this could develop into a crisis. The financial meltdown in the U.S. -- and the turmoil in the finance sector, which is a key market for information technology and IT-enabled services -- has seen a large number of finance professionals lose their jobs. These young, upwardly-mobile executives were the new generation of house buyers. They are now saving for the proverbial rainy day -- which has arrived. Confidence levels are down and house purchase plans have been put on the backburner.

Shailesh said...

All these developers are part of Cartel, they all should be jailed for creating monopoly and artificially manipulating market prices.

Home prices may drop upto 12%

MUMBAI/NEW DELHI/BANGALORE: Last week, at Mumbai’s Grand Hyatt Hotel, leading city-based real estate developers were closeted in an hour-long meeting. The agenda: to discuss ways to counter the slump in home sales which has persisted for almost an year now.

The outcome: The bitter realisation that the Indian developer has limited options before him to attract buyers. The builders unanimously agreed to allow customers to have a greater say in price negotiations — in other words, they decided to cut home prices.

The developers agreed to give a 10-12% reduction for all consumers, albeit couched in schemes such as ‘bearing’ 2-3% of the interest cost, flexible rates for parking and floor rise pricing. “Don’t be rigid on rates; allow the customer to have his say,” was how one participant who is involved in large housing projects in suburban Mumbai, described the conclusion of the meeting.

The developers’ move also assumes significance as a sharp correction in Mumbai home prices would have a ripple effect across the country. Though residential prices are down 20-25% across India, developers in Mumbai have been unwilling to cut prices, citing a huge demand-supply mismatch.

“This quarter was crucial for us,” said a developer who was present at the meeting. “Demand is still robust as far as residential markets are concerned. What we want is to convert the demand into actual deals. If pricing is hampering sales, we are willing to compromise on that,” he added.

Anonymous said...

It is absolutely ridiculous to compare Mumbai prices to the rest of the country, barring Delhi. All these Mumbai based builders think that Mumbai is the center of the universe, however the cities of the south and also Pune have got their own identity and their prices are independent of Mumbai. The cost of doing business is horrendous in Mumbai. Prices have to drop 50% for anybody to buy at these high interest rates and uncertain job market. Let them cut 12%, they will see 1 extra booking a month :))

Shailesh said...

Mumbai is coming down, just like NYC. No one is immune.

Mumbai realty sales plunge in August

MUMBAI: Mumbai, India’s hottest property mart, is cooling off rather fast.

Stamp duty registration data show sales volumes in FY09 (till August) have fallen 14% year-on-year and 33% since FY07, said a report by international brokerage Credit Suisse.

In August alone, the drop was a massive 27% year-on-year, the steepest fall in any month this year.

The figures put paid to claims by consultants and developers that the Mumbai realty mart wouldn’t be affected by the slowdown in the real estate market as demand in the island city exceeds the supply.

Developers ruling the Mumbai market —- Orbit Corporation, Housing Development and Infrastructure Ltd (HDIL), Akruti City, Lok Housing, Godrej Properties, IB Real - have been hit the hardest by slowing demand, say analysts.

Ramashray Yadav, chief financial officer of Orbit Corp, said in the last five-six months, demand has fallen drastically. “We don’t foresee any stimulation of demand. Our focus is on pre-selling and completing projects.”

The company is not announcing any new projects. “We had set aside over Rs 150 crore to buy new properties when the market fell but have now changed strategy. We are using the money to execute projects in the pipeline. Liquidity is not our main concern as we generated around Rs 600 crore through prior sales,” he said.

But analysts said total sales so far are just 20% of what Orbit clocked last year in the same period.

Anonymous said...

Great posts guys! Since most comments are about Mumbai, can someone enlighten me on Bangalore please. I have heard that there has been indiscriminate building in Bangalore and the prices are beginning to tumble. If one was to buy an apartment in Bangalore for living, not as an investment, which areas are expected to hold the values better? Also, would you advise staying put, a.k.a renting, or buying in Bangalore in 2009?

Anonymous said...

Anon,
Forget Bangalore, don't buy any RE for another 1-2 years in any A/B cities in India. There is going to be a major drop in prices close to 50-60% in A cities and 30-40% in B cites. This is becuase A cities had major fat in the prices that needs to to be cut and B cities have less fat.

I would also recommend that people raise voices against all these stupid IIMs/Premier B-school finance graduates who were sitting on their arse doing nothing but inflating the bubble. Is it what they are taught in these top schools. I'm glad my son chose to be a doctor than a dirty finance MBA from these schools that are a parasite for taxpayers.

Bunch of bastards. Time will take away all their greed from them. I'll never advise anyone to go for an MBA. Such a waste of money and time. Screwing common people of thier wealth by their ponzi schemes. And stupid Chidambaram has been enjoying the show.

Anonymous said...

i work in infosys. we had a meeting last week and the prediction is that massive layoffs are certain in IT sector in next 1-2 yrs.
This doesn't look good. I am told i will be laid off in 3 months. I bought one flat in 2004 and did well but unfortunately i bought another one(icici loan) in 2007 .. Now i am facing a crunch and with lay off will not be able to make the payment anymore..my friend has started getting life threats for not making 2 payments already
I think indian economy is crashing

sabbalseshu said...

A decent flat in Mumbai suburbs costs about 1 Cr The EMI for 15 year term is about 1.25 lakh per month. Plus there are other costs to foot. Now tell me which bank is crazy enough to give a mortgage to employees unless they have other assets as collateral.

As I said earlier, the real estate boom is due to small section of black moneyed people and economic downturn is not going to affect them. Dont live in a false hope of a crash. Prices may come down a little but not a crash.

Instead of living in false hope and alleviate your frustrations in this type of blogs, make your views known to government. If the government audits the income tax dept. properly and confiscates the ill gained wealth of people in spite of their positions/connections , then I can assure you that the market will crash

drake said...

i think it will be too much to expect a drastic fall in apartment prices for these reasons
1. the developers have bought land at very high prices in the last 2-3 years. now they cannot afford to reduce the price of the apartment by 40 or 50% as in the total cost of the apartment cost of the land is the major component

2. What may happen is the demand may go down because of the uncertainty and the developers may go slow or completely stop developing new projects.

3. As somebody has said in India the black money component is a major portion in real estate deals. the banks will lend only on the white money component and typically in the total cost loan component may be 40-50%. Hence difficult to foresee any distress sales or drastic fall, though for people who missed out buying a apartment before this boom started (me included)and the whole thing went out of reach it is a nice thought to keep their hopes alive for sometime

Vik said...

Someone asked about Bangalore and I have the following view on it.
Bangalore can be sub-divided into 3 areas suitable for middle/upper middle class living.

1. Malleswaram/Rajaji Nagar extending upto Dollars Colony

2. Jayanagar/Koramanagala/Indranagar Outer Ring road corridor from Sarjapur rd to Marathalli and Whitefield

3. Hebbal/Banaswadi on North and Vijay Nagar/Raja Rajeshwar Nagar on south - west


If you work in IT it is a nobrainer to live in 2.

If you are looking for long term growth, I would advise 3

If you are native Bangalorean then there is no alternative to 1.

Most rates around 2 are in ORR corridor which has seen thousands of apartments come up where you could get apts from top builders.

If you get anything under 3.5k I would say it is a good bet. I believe Divyashree on Sarjapur rd is selling for 3.5k and you can get resales for upto 3k.

Anonymous said...

One has to understand the prices are based on demand & supply of the commodity & the value some one is ready to pay. It’s not decided based on what price some one paid for it in past. When no one is ready to pay the exorbitant price, the commodity looses its price & it is called a illiquid asset. Imagine a property which was worth 1crore a year back but when no one is ready to buy that property, what is the today’s price? It’s a illiquid asset which have the price what buyer is willing to pay if any. If seller is not going to accept the buyer’s price, doesn’t mean the price is still 1crore. The mark to market value is what the buyer is ready to pay & all lenders accept the mark to mkt price when accepting that asset as collateral. Exactly this has happened in US sub prime mess.
If some one has bought the property at exorbitant price & not ready to reduce the price asks them to hold it tightly, market will move where prices are inline with the buyer’s expectation that’s why builder has started new boom called affordable housing. Refer
http://news.in.msn.com/business/article.aspx?cp-documentid=1627028

Anonymous said...

One has to be forward looking that what the prices would be in future and not what they were in the past. For example the stock prices during the dot com bubble were 4 times the current prices today even after 8 years after the bubble burst.

If houses were selling for 1 crore doesn't mean anything. It is all about the Rent/Mortgage ratio like P/E ratio in stocks. If the house rents for 20K a month, the morgage cannot be more than 25-20K per month. If people are paying 4 times the monthly rent in mortagage, they are idiots and losing their money and it doesn't make any financial sense.

Anonymous said...

In above I meant 25K-30K per month as tax breaks are allowed on interest.

Anonymous said...

US Sub prime Crisis:
o March 16, 2008: Bear Stearns gets acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by Federal Reserve providing up to $30B to cover possible Bear Stearn losses. [30].
o May 6, 2008: UBS AG Swiss bank announced plans to cut 5,500 jobs by the middle of 2009[31]
o September 7, 2008: Federal takeover of Fannie Mae and Freddie Mac[32][33]
o September 14, 2008: Merrill Lynch sold to Bank of America amidst fears of a liquidity crisis and Lehman Brothers collapse[34]
o September 17, 2008: The US Federal Reserve loans $85 billion to American International Group (AIG) to avoid bankruptcy.
o September 25, 2008: Washington Mutual was seized by the Federal Deposit Insurance Corporation, and its banking assets were sold to JP MorganChase for $1.9bn.
o September 29, 2008: Federal Deposit Insurance Corporation announces that Citigroup Inc. would acquire banking operations of Wachovia.[38]
o October 1, 2008: The U.S. Senate passes $700 billion bailout bill.



Europe Financial Crisis:
U.K. Treasury seized Bradford and Bingley, the country’s largest lender to landlords, and forced a sale to Spain’s Bank Santander. The German government guaranteed a loan to Hypo Real Estate, the country’s second biggest property lender. The governments of the Netherlands, Belgium, and Luxemburg gathered a €11.2 billion package to save Fortis, Belgium’s largest financial services firm. And, the governments of Belgium and France put up the equivalent of $9.2 billion to rescue Dexia, SA, the world’s largest lender to local governments.
http://news.bbc.co.uk/1/hi/business/7073131.stm

No wonder why this editorial came:
http://economictimes.indiatimes.com/Markets/Real_Estate/Realty_Trends/Have_money_Go_buy_an_apartment_in_the_UK/articleshow/3422707.cms

What you think Asia is next ?

Anonymous said...

There are several newly constructed but empty buildings near the place where I live in Thane (Mumbai suburbs). The builders are asking for exorbitant prices and have thus not managed to sell most of the flats. Recently a guy known to a friend of mine purchased one such flat and is now running from pillar to post to finance it as the banks are sitting tight and stopped disbursements of loans. I wonder who will blink first, the builder lobby, the banks or the buyers? The last seems unlikely as noboby could afford a 50L-1 crore flat in Thane nowadays.

Observer said...

Prices in Bangalore are correcting. This Diwali time period is crucial for builders and most are willing to negotiate. I would recommend people negotiate hard for a 20% discount. In Whitefield, one should be able to able to negotiate a price of 2300 Rs/sqft for flats in projects like Prestige Shantiniketan.

Of course, one should be very confident that he/she will not be laid off in the upcoming downturn. This downturn could see more than 15% of the existing staff of tech firms being laid off, as a severe recession is all but certain in the US and Europe.

As for me, I am not confident enough to buy a flat yet. Plus, I am able to rent a really nice 3-bedroom place for 14,000 Rs/month near Koramangala, close to the Forum Mall and other conveniences. To buy something similar in this area will cost me at least 60 lakhs. It just does not make sense. Given the choice of paying 14,000/month to live in a happening place, and paying 40,000/month to purchase a place in the very outskirts of Bangalore, which one would you choose? If one likes to go out, everything is here in Koramangala. After all, you live life only once. Better to enjoy now, rather than sit in some village on the outskirts of the city paying substantially more in EMIs every month.

sabbalseshu said...

Time again and again, bloggers are narrating US sub prime crisis, Bank finance, recession etc etc. Please note that the Mumbai real estate in not affected by these factors. The current prices are here to stay as there in no dearth of black money.

In olden days people used to convert excess money to gold and hide it. Nowadays they are buying assets like real estate, stocks etc. These are long term investors and are not affected by temporary market upheavals.
In western world wealth is directly proportional to living standard. In Mumbai, i know people worth several crores living in chawls without basic amenities and are content. These people will only buy a flat worth one crore, when their wealth exceeds 50 crores.

As I mentioned in my earlier blogs the price slide will only start if the government orders a crackdown on black money and start auditing govt officials/ministers/police etc

Happy Dreaming

Anonymous said...

Sabbal, Please do all of us a favor and buy an apartment on behalf of each post you make. We all are professionals but cannot afford to buy an apt since the bank will not qualify us for a loan of 1cr based on our income. Please contact your black money friends to fill up the apartments with their black money.

Prashant said...

Sabbal,
You are all too confident about the black money theory. Are you sure you have considered all aspects? I have no contacts or idea how the black money operates. But one thing is certain, even amongst the people who use black money, they will borrow from one another. If the value of the house starts to go down, they will cut the losses. In fact, I suspect, that you will see lots of crimes when things start to go down. For example, the goondas will demand money from the builders, but the builders won't have any money. That will lead to more crimes, I suspect. There could be whole lot of scenarios that you have not considered.

Another reader commented that the builders have paid a lot of money for the land so they will not reduce the prices. The fact is that these builders will have to pay back to the banks from whom they have borrowed. In fact, I hear that they often borrow from the black market. In any case, once the lenders start demanding the money, the builders will have to sell the flats at a loss. In fcat, many builders will declare bankruptcy.

Anyone who says that India is different, is making a grave mistake. In EVERY bubble people deny that they are in one and that their case is different. That is nonsense. Look at the numerous bubbles in history and you will know what I mean (search Google).

One another thing. When the RE in India starts to go down, you will come to know of a lot of things that we do not know now. For example, the exact role of black money, speculators, the greediness of builders, the carelessness of banks and a whole bunch of things. When such stories unfold, it will be very obvious that we were in the greatest bubble in Indian history.

Anonymous said...

Following applies only to Mumbai

I recently came across this scenario

Cost of 3 b/r apartment: 1.5cr

Rent for similar apt in same bldg: 30k rs per month

if someone has 1.5 cr , the bank pays 1.25 lakh interest per month

The disparity between cost and rent is astronomical, i.e 4:1

This doesn't make sense . But if one deeply analyzes the situation, I feel Sabbalseshu maybe right but his explanation is crude and not appealing and therefore dismissed as absurd.

I am at a loss to understand the market, what really is black money and why is it not curbed. Anyone has any answers

Rajesh said...

Excellent discussion. There is no way to distinguish one anonymous reader from another. Can you folks mention a name please? It doesn't have to be your real name if you wish to keep your privacy - you can use a pseudoname. Thanks.

Shailesh said...

sabbalseshu:

Go and ask some old timers on what happened to Mumbai real estate in 1994 to 2003 time period. During the boom years of 1991 to 1993, home prices doubled. In 1995 to 1996 prices crashed almost 50%. The prices came back to same level as 1994 almost after an decade.

Mumbai real estate market is one of the most volatile. The speculation is the highest among business owners. But majority of these owners do not buy speculative properties with their own money. Most borrow money in black market. The rates to borrow will rise significantly in coming days.

Since most people do not know about black market, Builders exploit that fact to normal professional buyers. Basically it is one of the trick to instill fear, saying buy now or be doomed forever. In Mumbai housing, there are many such fears created.

1. They are not making new land anymore.
2. TDR or FSI is not going to be available.
3. Multinationals are buying houses for their executives and are paying in USDs.
4. Large amount of Black money is available with rich guys.
5. House prices will keep going upward.

etc.... I am sure many on this board can add to this list.

Anonymous said...

Shailesh,
This time you cannot compare it to 80s or 90s. What has happened has never happened earlier in lifetimes of many people who are at least 80 years old.

People will stay in denial mode for a while and then give in. My prediction for Sensex is 8000 points in coming months or below.

As regards to housing, many Indians will find it hard to digest but the prices will be down by 50-60% in the coming year. No matter it was black money or white money, shortage of housing etc. The prices will fall drastically.

The main problem is it is not good for India. The India Rising thing will go on the back burner. Lot of layoffs are coming. Lot of these highly paid idiots at MNCs may see layoffs like people at GE and tons more. It would be a catastrophe as many Indian industries and high paid salries thrive on US/Europe.
What a shame.

I wont be surprised if we even see a lot of suicides as people are not mentally prepared.

Anonymous said...

Pl read the article below in ET about rising prices in City centre locations. This article is from 5th Oct,08. On www.meridharti.com, I had written an article about NCR in which I had predicted continued strength in Delhi market and relative weakness in suburban markets of Gurgaon & Noida. I had written this article on June 10th, 08. In the foreseeeable future, I see relative strength in downtown locations in Delhi & Mumbai (especially) and Bangalore downtown as well. However, suburban markets are likely to remain strained over the next 12-18 months.

http://www.meridharti.com/property-trends/is-the-ncr-real-estate-market-in-a-bubble-2/

http://economictimes.indiatimes.com/Markets/Real_Estate/High-end_residential_areas_see_20-25_rise_in_price/rssarticleshow/3561301.cms

Later,
Ashish
www.meridharti.com

Observer said...

Speaking of suicides, the following is a story about an Indian MBA/Finance type (Karthik Rajaram) who migrated to America and when he got laid-off, he killed his family of six and then shot himself. This is a very sad story. He had lost his home and his job and was about to have his family out on the streets.

Please visit the following link:

http://ap.google.com/article/ALeqM5jgQq_Pn5o6mQHLQWGyzBoiaz4nOwD93LDDQO1

Observer said...

Looks like Ashish of the "Flat prices will continue going up 11-12% a year" is back peddling his investments in NCR. I hope no one falls for his tricks. Otherwise, one may end up like Karthik Rajaram. Major job losses are coming. The IT companies are acting as if there is no slowdown in media reports. However, the following article paints a different picture. Many engineering colleges are reporting a 70-80% drop in recruitment visits by IT companies. Please check the following link:

http://www.business-standard.com/india/storypage.php?autono=335954

Observer said...

This website is the top search result on Google for Housing Bubble India! No wonder all the real estate shills like Ashish, Boss, Realty Rider and others are starting to come here to confuse people and prevent them from knowing the truth! I am sure a lot of people are reading these comments. Folks, please continue countering these real estate shills and present the true picture to Indians.

Save yourself and your family. Do not fall for the tricks of the real estate lobby!

Observer said...

A snippet from the above article is pasted below:


The slowdown in the US has impacted campus recruitments in tier-II cities as well. According to representatives from engineering colleges, IT companies are now staying away from the campuses, which has resulted in an over 80 per cent drop in placements.


It is not just the big companies. Even mid-size and smaller IT companies are going slow on recruitments due to the uncertainty in business from the US, which is the single-largest market for these companies, says L Venkataesan, a placement consultant based in Tiruchy.

JJ College of Engineering in Tiruchy, till before last year, saw almost 95 per cent of its students being placed. S Parthasarthy, director (placements, JJ College), said between January and September last year, 200 students were selected of which 50 got offer letters.

This year, only two have been selected. Earlier, almost all the top IT companies like Infosys, HCL, Satyam, Cognizant and TCS visited campuses for offering jobs. But this year, except Infosys, which recruited just one student, none of the companies turned up, he added.

The slowdown in the recruitment activity has lowered the morale of the students, said Mahadevan, placement officer with SA Engineering College in Tiruverkadu, near Chennai. Around 400 students pass out of this college every year. Last year, 80 per cent of the students were placed. But this year, only 10 per cent of the students had been selected so far.

Observer said...

As mentioned by myself previously, there is a certain segment of the Indian population which is unaffected by the global financial crisis. Rich people have plenty of money, and therefore even during a huge recession, that micro-market will do well in all countries. However, the real estate shills like Ashish and the Boss will desperately try to use that statistic to try and paint a rosy picture of the overall market.

As mentioned in one of the articles above, developers are reporting that sales have fallen by more than 80% in most of the areas in metros like Chennai. Just because rich people continue to buy property in some markets, the vast majority of Indians will not be able to afford the current high prices. Buyer beware.

Vik said...

Ashish is posting here to no only pump up the market but to also increase his google page rank for web searches. I will let him keep posting since a free flow of information is critical to our analysis

Observer said...

You might be right, though his website does not seem to show up on google searches with common terms at all. I think people like Ashish are severely underestimating the severity of the upcoming recession. The US/EU/Japan are all in recession now. 90% of the IT/ITES projects originate from these zones. There is a massive deleveraging going on and it will take a couple of years to wind down completely. Most intelligent independent economists are predicting 50% drops in broad-based stock indexes around the world, and businesses halting expansion and going in for consolidation.

This does not mean IT companies in India will get more projects. It could result in clients completely putting off expansion plans and not renewing contracts. IT companies may see their business dry up by more than 25% in the next year alone based on what I have read. India's domestic economy just cannot substitute for that level of business. What happens when the IT companies pull back. The IT employees pull back, and fewer of them buy those high-priced apartments, cars, durable goods, expensive clothes at those expensive malls, and so on. The consumer boom has been primarily fueled by FDI and IT/ITES/BPO/KPO industries and their employees. Already traffic at Malls are down by 30% according to a recent report in the Week magazine.

There is a lot of overcapacity coming up, and I think there could be a moderate-to-severe recession in India also, maybe not to the same extent as in the OECD countries. The greatest credit bubble in history is deleveraging worldwide.

Given this worsening scenario, it is irritating to see people like Ashish prattling on about how average real estate prices are going to go up by 11-12% every year in India. I do not know whether to laugh or cry at this shocking exhibition of ignorance. As they say about a frog in a well.....

Anonymous said...

Ashish ullu ke pathe, tu chutiya tha, hai or rahega.

Why don't you bloody understand that you have no right to misguide naive people. Teri akal mein ghusta hi nahin. Moreover you don't belong to this blog.

Fuck off and buy more properties for yourself.

Anonymous said...

I have been seeing people predicting market fall since last year. Some have even mentioned a fall of 50%. All the best to all of you who had preferred paying SIP instead of EMI. Although a lot of unfolding shows the pressure on builders but we are also forgetting the fact that inflation is coming down and RBI is seriously looking at further reducing the interest rate. CRR has come to 2006 levels i.e. 6.5% and is further likely to go down to 5.5% shortly (lowest in this decade). It is just matter of time home loans will be available in single digit.

2) Mumbai has a pent up demand for homes approx 30 million Sq ft per year.

3) Properties prices on an average have grown at 8.5% CAGR from 1996 to 2008. You will be shocked with these figures but pls. calculate with your own flat value.

4) Exports are hardly 10% of the GDP.

5) Government will drive growth by cutting interest rates further.

6) We have become 20% more competitive in International market on account of Rupee depreciation.

7) Migratory population composition has changed in Mumbai from worker category in 70's 80,s and now professional and working couple. Mind it the aspirations of these couples are nothing less then 3 to 4 BHK.

8) Average home value in 96 after the fall was 16 times the salary for 1 BHK, today it is less than 12 times, mind it I am not counting your spouses income

There are lot of other points like last two years the builders have made a kill and thus increasing the holding capacity, besides builders going public, PE money, SPV which have increased their holding capacity.

I just want to add further that 70% of their sales come during this festive season. If the builders have decided not go reduce the price like what a lot of people are expecting in this bog then trust me they are ready to hold this price more for a year,

Some people predict because they have position or they feel this could/will happen. I strongly believe that a common man is in no position to predict the market. Common man expected BSE to touch 25k in 2008 some even mentioned 30k what happened is v all know.

People who predict are like stop watches, two times in twenty four hours they are right.

Thanks and all the best to all of you who wants to buy house. I would request to buy if it is only for actual use and also almost completed properties. Pls. don’t forget to negotiate hard especially if it is investors flat. You should look at at least 30% discount, this is the only opportunity.

Home loans are bound to come down, stock markets will bottom out within 3 to 6 months and then the correlation between stick and real estate will vanish.

Once again all the best to all of us.

Anil

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