Friday, October 24, 2008

Realty funds bear the brunt of the ball

New Delhi: Shares of real estate firms were the worst hit on Friday after concerns of a liquidity crunch in the business drove the sectoral index, the Bombay Stock Exchange’s (BSE) realty index, down nearly one-fourth.

Shares of Unitech Ltd, India’s second largest developer by market value, fell by a record 51.29% to close at Rs30.10 each after intra-day trading took it down to an all-time low of Rs26.60.
Bangalore-based real estate developer Puravankara Projects Ltd, which saw its shares closing 44.32% lower, also touched a record low of Rs42.20 in day trade.

“People are concerned about cash provisions and where will real estate companies get money from,” said Sandeep Mathew, an analyst at BNP Paribas Securities in Mumbai.
An analyst with a domestic brokerage firm, who did not want his or his employer’s name to be used, said, “...people are exiting at any price because there are no buyers for realty stocks”.
There is an aversion towards real estate stocks among “investors (who) are now shifting from net asset value-based valuation to cash flows of the company”, he added.

Shares of DLF Ltd, the largest developer in the country, shed 23.96% to close at Rs203.90. Parsvnath Developers Ltd fell by 20.70% to close at Rs45.20.
BSE’s benchmark index, the Sensex, shrank 10.96% while BSE’s realty index, which consists of 14 real estate stocks, fell by 562.31 points or, 24.4%.

“Real estate stocks have been correcting mainly because developers have not reduced home prices despite a slowdown in sales,” said another analyst with a domestic brokerage firm. “In Unitech’s case, the stock has corrected because the company is heavily leveraged.”

mint reports on 30-50% drop in prices if you are willing to pay cash instead of staggered payments.


New Delhi: As the Indian economy faces a liquidity crisis, banks remain wary of lending money to the real estate sector. The developers, facing deadline pressures for delivery of projects, are forced to tap private money lending sources. Consequently, they have been forced to borrow money at steep rates.
According to Sanjay Khanna, managing director of Kailash Nath Associates, this rate could be as high as 5% per month. A rate of 5% interest per month translates to a whopping 60% per annum. It means that a developer will have to pay Rs6000 for every Rs10,000 it raises. Builders do not have the money to construct and have approaching delivery deadlines. Real estate experts fear that some builders may even default.

Santhosh Kumar, deputy CEO of property consultants and brokers Jones LaSalle Meghraj agrees with Khanna but says that players with better fundamentals may still find money at 15-20% rate of interest. “But others may have to pay upwards of 30% as well,” he says.
As demand slows, the price of residential and commercial real estate in the country has been sliding. It has fallen by 15-20% across metros over the past nine to twelve months and is expected to fall by another 30-40% over the next few months. In such a scenario, developers who went aggressive on land acquisitions, based on the presumption that prices will continue to rise, find themselves in a tight spot. They are now forced to borrow money from the market at unsustainable rates.
Ashish Mathur, Head-Business development and marketing for Mahindra World City says, that some small developers may have to exit the business all together if the market does not pick up soon.

The problem is worsened by a slowing economy and over supply of office space and it’s slow off take as reported by real estate consultants Cushman & Wakefield and CB Richard Ellis among others. Expensive home loans have turned away the residential buyers as well. Almost 90% buyers use bank finance for home purchases. Santhosh Kumar says that developers are expected to cut prices by 30-50% or more to boost offtake in the coming months. He warns, there may even be distress sales by developers.

The bad news for realtors extends to the stock markets as well. The BSE realty index fell 24% on Friday on worries that the real estate sector is heavily leveraged. As the economy slows down and money gets dearer, the pain is only expected to get worse for real estate developers.

26 comments:

Observer said...

These realty companies are suffering due to their own greed. They should have tried to drive sales by cutting prices and paying attention to delivery.

Now, I am not against the real estate industry itself. I think it is a vital part of any country's infrastructure. However, the builders, by bribing politicians, and by forming a cartel, have operated against the interests of their customers.

How will people like it if the oil companies form a cartel and raise the price of petrol to 200 Rs/litre? Yes, it is important for companies to make a profit, but not by squeezing customers and keeping prices artificually high.

Anonymous said...

I am just curious to know what happens to a company when it goes bankrupt. What happens to the debts.Are the directors and promoters personal assets affected

Appreciate an answer

Observer said...

When a company goes bankrupt, through a court appointed receiver (BIFR or some other Govt organization), the assets are disposed of. Usually the creditors recover only a percentage of their money. The personal assets of the company officials are not affected, as long as they did not take money out of the company illegally.

Shareholders can expect a 100% loss usually.

Suresh Prabhu said...

The following appeared in todays DNA. I can understand the woes of financial institutions and aviation companies, but the corrupt Realtors deserve any relief ? Comments please

Realtors seek relief from PM
Pooja Sarkar & Sobia Khan

To approach govt with wish-list soon

MUMBAI/BANGALORE: After financial institutions and aviation companies, it’s now the real estate sector’s turn to approach the government for a relief package. Realty industry bodies such as the National Real Estate Development Council (Naredco) and Confederation of Real Estate Developers Association of India (Credai) are ready to approach Prime Minister Manmohan Singh with their wish-list next week.

Rohtas Goel, vice president of Naredco, and chairman and managing director of Delhi-based Omaxe Ltd, said, “Our main demand is that affordable housing should be withdrawn from section 80 IB (10) and moved to section 80 IA. The government has to make houses less than 1,500 sq ft in area tax-free. Even the stamp duty should be waived for affordable housing projects,” Goel said. Naredco has been set up under the housing and urban poverty alleviation ministry.

Liquidity crunch is a big problem plaguing developers. “Our second demand is that banks restructure the debt they give to builders and lower the rate of interest,” Goel added.

Credai, a real estate body that has 10 member associations from various states, has already dashed off a letter to the PM seeking a meeting.

Lalit Kumar Jain, VP, Credai, said, “We want the government to instruct banks to take proactive measures to create liquidity in the market. We also want the government to do away with taxes it has imposed on developers for building residential properties.” Jain said a developer pays 35% tax for the development of any residential project. Realtors want these taxes cut to zero.

Banks are lending to developers at an interest rate of 18-20%, making loans for construction expensive. Jain said, “Exactly four years ago, interest rate was at 9.5%. Now, banks are shying away from giving us loans. Where will developers take loans from? We want the government to cut interest rates to below 12% so we can get funds.”

Naredco has prepared a 16-page report that will be sent to the government in December. Realtors are hoping that the report is taken into consideration during the next budget.

Thanks to the global financial turmoil, realty stocks have taken a pounding and developers are unable to sell the projects in the premium segment.

Developers say they need government intervention to make housing affordable.
An official with a major north-based developer that has expanded its footprints to different states said, “We have been seeking support to build affordable housing projects but neither the government of Maharashtra nor Uttar Pradesh and Jharkhand has come forward to help.”

Omaxe’s Goel, however, has received positive response from the government of Punjab for the company’s affordable housing project. “The Punjab government is ready to relax the stamp duty for our affordable housing project. We are expecting a positive response from other governments too,” he said.

Omaxe has launched a 100% subsidiary, National Affordable Housing and Infrastructure Ltd (Nafhil), for 10 lakh such homes in tier II and III cities. According to government data, the country has a shortage of 25 million homes in the affordable housing segment.

Among other demands are interest-free loans up to Rs 5 lakh for members of the economically weaker section (EWS) so such people can buy homes. This section is already on the Congress-led United Progressive Alliance’s radar as it approaches general elections and seeks EWS votes. A senior official from the housing ministry said the government would soon announce a plan to give EWS home loan seekers a cut of 5% in prevailing interest rates.

Anonymous said...

Incredible!!!

My question is if the realtors are provided with the relief they asked for, will they pass it on to consumers or deposit the extra money earned in swiss banks

Anonymous said...

“Our second demand is that banks restructure the debt they give to builders and lower the rate of interest.”

What about the borrowers who are bearing the burnt of increasing the EMI with salary cut, job loss in the offing. Recently ICICI bank increased home loan rate by one percentage point to 13% on October 10.

ICICI rate up for old customers too "http://timesofindia.indiatimes.com/Business/India_Business/
ICICI_rate_up_for_old_customers_too/articleshow/3634770.cms".

Why the heck the home loan rate was increased in spite of CRR, Repo rate cut by Reserve bank?

NRIs have also contributed to this unprecedented hike in real estate prices. Come X'mas (December) and they would go on buying spree for flats, lands driving the prices up. Now their own houses being "under water" and the eminent economists, nobel laureates ( Roubini, Krugman, Stiglitz) commenting " worst is ahead of us, long and deep U type recession", it will be very hard to see them contributing jacking up the prices.

By this time realization must started dawning upon the IT guys. They have started coming back from onsite with the worry writ large on the face. How are they going to pay the exorbitant EMIs? Since the recession has hit the entire major advanced and developing economies it is high time the IT companies got their head out of sand and gave the REAL projections about the future earnings.

Anonymous said...

The corrupt politician & Builder’s game plan to swindle 100 acres of public land in developing area of PUNE.
After the real estate slump PUNE builder has started a new scam with the help of politician to convert the public land into residential land. The land price is 15Crore per acre so the whooping scandal is worth 1500 cr. Last week only the Maharashtra state govt. published the updated town plan in gazette without providing the explanation of converting public land into residential land.
There is no coincidence why these scam happening now only. Next year is the election time, politicians are feeling short of cash & due to market crash builder don’t have much
for collateral.

The Green Pune has started a movement against this scam , please support by objecting the govt. decision.

http://government.wikia.com/wiki/Baner_Balewadi_DP

Anonymous said...

I have been working in india for last 15 yrs and in that period i have gone through the ups and downs of the economy. Though been graduated from IIT, had to face tough times in 1995 - 1998 while working in mechanical industry. But for last 8 years i m into software development, with the best renumeration that an IT guy can get.

Most people around me in the industry are young with CS or Elect degree and have not gone through the sine wave of the economy. They extrapolate the things in a linear manner from late ninties. This makes them to take more risk by going for higher loans etc. For example i know a guy who use to get 50k per month in india with an experience of 2 years, but for last 1.5 year is working in US and since then he is paying an EMI of 50k for a 10 year loan. Imagine what would happen if he is forced to move back ?

when i suggest him to take a loan of 20 years instead of 10 years so that his EMI would be within his reach if he has to return back, he said he doesn't want to waste his money on bank interest and he is confident that he would be able to make the loan in 3 years. This is what i call linear interpolation. believing that the economy will always grow and india will keep on shining.

Anonymous said...

Anon above,
Maybe your friend wanted to get done fast with the loan with a consideration of an optimisitic view of economy.

The wave we are riding this time is very severe and nothing compared to the slowdown in mid-90s or the dot-com recession. This time it went really far and beyond a normal person's belief and would get really UGLY when the dust settles down.

Paying 50K is fine but what happens when the same house sells for 50% of its 2007/8 value in 2009. This person would have lost all his hard earned money to the banks and the paper appreciation on the house.

Observer said...

Volvo trucks is cutting output by more than 90%. Yes, the above is not a typo it is 90%. Here is the link.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHDYgaVOzcYY&refer=home

Also, Arcelor-Mittal Steel is shutting 17 out of 39 mills for a period of two months initially till there is better visibility on demand. Steel demand is dropping rapidly. Ships are now idling in ports. Some of the shipping trade has collapsed by almost 70%! One can google for the Baltic Dry Shipping Index.

Europe is entering a major recession. Indian IT and manufacturing companies thought that diversifying into Europe away from the US would make them safer. Instead, both economies are feeling tremendous strain. Hungary has raised its interest rates to 11.5% to prevent a currency crash, and Bulgaria, Latvia, Ukraine and other Eastern European countries are asking for IMF help as they are on the brink of a currency collapse. Things are becoming ugly.

Argentina is on the verge of sovereign default again, and Japan has also entered a recession. Its Nikkei stock index is now lower than it was in 1984! Japan's property value is now less than in 1989!

I am becoming somewhat pessimistic that this will be a quick recession, which will be over in a year or so :-( I think it is going to be much more severe, and drag on for years. There is a real danger that the US currency could collapse, leading to interest rates of 8-10% or more in the US. That would lead to a further crash in the US property market, and also the consumer market.

I read in the Hindu paper that orders for textiles from India is drying up in both US and Europe. Also, car production for export to the European market may come down sharply. A severe consumer recession seems certain for the major economies.

I am very much surprised that the Govt is claiming that inflation is coming down in India. Tomatoes in Bangalore are now selling for Rs 45/kilo! That is 400% inflation in some food prices! No wonder the RBI left interest rates alone. They know that if interest rates are reduced, it will only lead to even higher prices, and an even weaker rupee.

Things are unraveling. I think people should stay away from the stock market and property market for at least a few more months till there is some clarity on the extent of this crisis.

If Volvo, Scania and other European manufacturers are cutting truck manufacturing by 90%, it would indicate that demand for commercial vehicles is collapsing, which would indicate that trade itself is contracting suddenly and sharply from this quarter. Not sure what the future is at this rate.

I think what is sad is that so many Indians are unaware of the coming severe recession. Most high-paying jobs in India are going to be at risk. In these times, earning 30,000 Rs/month at a Govt job almost seems like the wisest choice.

Anonymous said...

My Dear Observer:
The recovery that you mentioned you are pessimistic about in a year is somewhat true.

My take is it is not going to be a "V" or a "U" shaped recovery but we are entering into "L", i.e. no recovery for 8-10 years.

This major mess will take away sleep of a lot of high flying Indian idiots especially all those high paid MBAs who do nothing other than developing scams. I think MBA degrees will be out of demand for the next 10 years or more and their salaries will go down drastically.

For example, GE is laying off people in their financial sector. These high paid idiots couldn't even see what is coming and were saying that the growth is due to the games in Indian in 2010. What a shame. I'm glad that I didn't except my job at Citigroup after my MBA and rather joined the Govt. for a stable job. My family was not happy about it and asked my reasoning: I told them that what Citi and other big banks were doing was legal but unethical like charging 40% interest rates on credit cards and I wanted to be in a job that was there to do business and make money but only "Ethically".

Anonymous said...

Observer,

Where did you see 90 % cut... I never heard anything of 90% revenue down in Truck mfg... if the sales is down in europe then outsourcing will improve... The world will not come to an end... Dont expect that

Volvo said the European market for heavy trucks may be flat this year, while North America will contract by 10 percent. The company had previously forecast growth of 10 percent in Europe, with North America industrywide truck deliveries unchanged.

sabbalseshu said...

I'm surprised to read the doomsday prophecies, like some cults were expecting the world to come to an end in year 2000. Did it happen? no. Now that people have started comparing India with USA, and forecasting recession. What a joke. Go to the market and find out yourself. There is no slowdown in real estate. Those who have money are still buying at market rate.

Real estate never dependent on salaried people and never will. Actually, now the prices have sort of stabilized, it is right time to buy if you have cash. Current slowdown is due to the builders reluctant to deal with people who can not pay outright cash for their purchase. There are lot more people in Mumbai just waiting for the price to go down which is unlikely and the builders know it and therefore worried. Commerce depends on supply and demand. The demand is currently suppressed.

Please do not believe the doomsday stories. If you really want to buy an apartment, now is the time as you have plenty to choose from.

Vik said...
This comment has been removed by the author.
Vik said...

New Delhi: As the Indian economy faces a liquidity crisis, banks remain wary of lending money to the real estate sector. The developers, facing deadline pressures for delivery of projects, are forced to tap private money lending sources. Consequently, they have been forced to borrow money at steep rates.
According to Sanjay Khanna, managing director of Kailash Nath Associates, this rate could be as high as 5% per month. A rate of 5% interest per month translates to a whopping 60% per annum. It means that a developer will have to pay Rs6000 for every Rs10,000 it raises. Builders do not have the money to construct and have approaching delivery deadlines. Real estate experts fear that some builders may even default.
Click here to watch video
Santhosh Kumar, deputy CEO of property consultants and brokers Jones LaSalle Meghraj agrees with Khanna but says that players with better fundamentals may still find money at 15-20% rate of interest. “But others may have to pay upwards of 30% as well,” he says.
As demand slows, the price of residential and commercial real estate in the country has been sliding. It has fallen by 15-20% across metros over the past nine to twelve months and is expected to fall by another 30-40% over the next few months. In such a scenario, developers who went aggressive on land acquisitions, based on the presumption that prices will continue to rise, find themselves in a tight spot. They are now forced to borrow money from the market at unsustainable rates.
Ashish Mathur, Head-Business development and marketing for Mahindra World City says, that some small developers may have to exit the business all together if the market does not pick up soon.
The problem is worsened by a slowing economy and over supply of office space and it’s slow off take as reported by real estate consultants Cushman & Wakefield and CB Richard Ellis among others. Expensive home loans have turned away the residential buyers as well. Almost 90% buyers use bank finance for home purchases. Santhosh Kumar says that developers are expected to cut prices by 30-50% or more to boost offtake in the coming months. He warns, there may even be distress sales by developers.
The bad news for realtors extends to the stock markets as well. The BSE realty index fell 24% on Friday on worries that the real estate sector is heavily leveraged. As the economy slows down and money gets dearer, the pain is only expected to get worse for real estate developers.

Observer said...

Anon above, please read the Bloomberg article that I had referred to above. If you want I will provide the relevant snippets below. Please remember this applies to Europe. The sales for this year will be flat or slightly declining, but that is because the first 3 quarters were decent. The current quarter, and forthcoming quarters in 2009 are looking really bad. Stock markets anticipate future growth and profits, and that is why they are down so much.

I think it is laughable to expect that outsourcing will actually improve with the financial crisis. If you see my previous post, you would find a quote from TCS Chairman Ramadorai that some of their clients are disappearing, and this is the toughest conditions they have ever seen! Do you know something that the chief of TCS and other companies don't?

Anyway, here is the quote from the Bloomberg article:

"Volvo plunged the most in at least 19 years in Stockholm trading. The Gothenburg, Sweden-based company won just 115 European orders in the third quarter, down from 41,970 a year earlier. Soedertaelje, Sweden-based Scania slipped 8.9 percent to a four-year low. "

``We're heading towards the sharpest downturn I've ever seen in Europe,'' Volvo CEO Leif Johansson said during a presentation with analysts. ``We have a number of customers that aren't sure they'll be able to get credit. We will have to adjust to whatever comes our way.''

Volvo today said the construction equipment division, the second-largest after trucks, suffered a 44 percent decline in its order book in the third quarter and that ``there are increasing signs of demand weakening also in markets outside Europe and North America.''

Observer said...

I sometimes feel sorry for Sabbalseshu and Ashish and others. I guess it is their job. Pet ka sawaal hai. But anyway, they will do their job to keep the market pumped up, and we will do ours to warn of the severe correction. The difference is that we have actual references and news reports of the correction, while all they can offer is their own personal opinion.

Anonymous said...

People who were in denial mode and touted “Decoupling” just a few days back are now waking up to the reality.

http://epaper.timesofindia.com/Daily/skins
/ET/navigator.asp?Daily=ETM&login=default
Decoupling
“Well, that’s a myth that had almost become gospel for many Indians. It was a fond belief propagated by many die-hard market optimists that the Indian economy is inherently so strong and resilient that it will remain insulated from all the global turmoil, no matter how severe the crisis. It believed that the Indian economy would continue to grow at a sharp clip even if the world economy tanked.

Most of them have realised by now that after the US sneezed, we too contracted pneumonia.”

ohh.. that’s the cliche

This time - "The US not just going to sneeze and have a cold, it is going to have a protracted period of pneumonia," New York University economics professor Nouriel Roubini

Observer said...

World will not end, but as suggested in a wide variety of media reports, there could be a 40% price correction coming in the next year or so. What is the harm in waiting for one more year?

Also, I find it funny that Sabbalseshu is saying salaried people do not own real estate. It is so funny that this is sad. Nothing more to be said. But anyway man, you are doing your job to the best of your ability. I sympathize with you. Please try your best to keep pumping up the market.

Observer said...

Another story about even IIT graduates getting laid off, and are willing to work for half the salary from the previous year. I guess the days of people buying 60+L apartments thinking their pay will continuously increase by 15% eveyr year for the 20-year loan period with EMIs is gone.

DO you think these graduates will recklessly take home loans now without considering their jobs secure for 20 years? Here is the article:

http://economictimes.indiatimes.com/IITians_feel_the_meltdown_heat/articleshow/3643539.cms

NEW DELHI: So you thought IITians were immune to the ups and downs of the job market, right? Think again! Many IITians working with Indian and multinational companies are facing the axe because of the global meltdown.

The 24-year-old Siddharth Arora (name changed) is one among them. He lost his job last week with a US-based legal process outsourcing company. When he got the confirmation letter for this job 11 months back, he was on cloud nine — an attractive salary and an interesting job profile in intellectual property. But today Siddharth, who completed his masters this April, is looking for a job. He is ready to settle for much less (around Rs 4-5-lakh) compared to Rs 7 lakh that he got with his first job straight out of the IIT campus. He has already applied to 50 companies and is still awaiting a response.

Siddharth’s is not a stray case. Close to 13 of his colleagues from top four IITs — Kanpur, Kharagpur, Bombay and Madras — have also been laid-off.

Cool Head said...

They have only themselves to blame (and some of the blame can be laid at the door of the Indian Maninstream Media too). They touted the IITians as people of a super-intellect who could be capable of anything. Sadly when I was interviewing them for my company (for engineering positions in Germany, I was shocked by their total lack of basic physics, chemistry and engineering knowledge. They were arrogant too, saying that you should not ask these technical questions as we already have alternative offers in hand from Wal-Mart, Some BFSI companies and software firms. These people looked at the IIT degree as a passport to getting a cushy job without studying anything or knowing anything related to their domain.

Observer said...

Buy a FLAT and get a Mercedes or another Flat Free!!

The builders are doing everything to keep the list price the same to please their cartel brothers, but they are offering discounts in other ways. They are reporting that inquiries are down by 90%!. Sabbalseshu thinks transactions have not seen any slowdown! Anyway, I understand Sabbalseshu's problem, it is a question of his earnings and his stomach, so he has to say what he has to say. But anyway, what to do, the facts are the facts!


http://in.rediff.com/money/2008/oct/27flat.htm


Within months of charging the moon, Indian real estate firms are now offering buy-back of properties, free cars and even free apartments to tide over the current slump which has seen sales halve from the beginning of the year.

Mumbai-based Cosmos Group has launched the 'Ghar pe ek Ghar free' (one house free on every house) offer at its four upcoming housing projects in Thane near Mumbai and Lonawala near Pune.

The buyer will get a 1-BHK flat free with a purchase of a bungalow or a big flat, while with a 2-BHK flat, a bedroom and a kitchen come free.

Another property developer, Sunil Mantri Realty, has launched an 'assured buy-back offer' at its housing projects at Mumbai, Gwalior, Solapur and Bangalore. If the property price goes below the purchase value, the company will buy it back at the same price on the condition the buyer holds it for three years.

Delhi-based Jaypee Group is offering BMW-3 Series, Mercedes Benz or Toyota Camry luxury cars free, depending on the size and value of its flats at Noida and Greater Noida. And Ghaziabad-based SVP Group is giving 50 gram gold coins for apartments at Ghaziabad priced between Rs 45 lakh (Rs 4.5 million) and Rs 2 crore (Rs 20 million).

Desperate situations, desperate measures. These mind-boggling offers, mind you, have been thrown in during the Diwali and Navratra season, when many buyers think the time is auspicious to invest in real estate properties. But the meltdown in the sector has forced real estate developers to think out of the box.

"We have to look at innovative methods to improve sales when liquidity is tight and banks are not lending to developers," said Sunil Mantri, the promoter of Sunil Mantri Realty. Mantri has already waived off stamp duty and registration charges for its Goregaon project and has given a discount of 6 per cent for its Bangalore project.

Still, companies and brokers said there are very few enquiries from buyers. "You cannot compare this Diwali with any other Diwali in the last 10 years. Sentiment is totally negative," said a top DLF executive who did not wish to be named.

Sector analysts said a lot of developers need cash desperately and therefore have no option but to sell their existing stock in a hurry. Raminder Grover, the managing director of Homebay Residential, a subsidiary of property consultancy Jones Lang LaSalle Meghraj, said: "Developers have a lot of stock which they need to clear and make money. Diwali is the best time to do that. Unfortunately, nothing much is happening."

Ironically, these unheard of offers have been launched when advertising budgets of developers are getting pruned. According to a senior executive of a realty publication, realtors have cut their ad spends by 7-8 per cent in recent times.

"Our ad volume from the sector has gone down drastically in the past few months," says the executive who preferred anonymity. Another media buyer said, "Despite advertising various offers, developers aren't getting the right response from the consumer. The consumer response has gone down by almost 90 per cent."

Prashant said...

I'm very happy to see the bearishness from insiders in the industry.

Watch out for these two changes in the next few months:

1. Now that the ad revenues from realty sector will dry up, the media will try to feed the public with the bearish new items - because that's what is going to SELL.

2. The developers tried enticing the buyers with freebies, but as you can see that's not working. Now they will start offering huges price discounts - like 30-40% off. The builders will try to scare the buyers that this deal must be completed before end of the quarter, or it will be gone - blab, blah, blah. And obviously some buyers will fall for it. Of course, later on the prices will fall ever further. I wouldn't be surprised with drops of 60-70% eventually. This might take a couple of years. But we will get there. And I believe that, that will be the time to start you purcahses - whether for living or investing.

BTW, I'm stating these two points based on my observations of housing market here in the US. The point is that a bubble is a bubble and it will share its characteristics with most other bubbles.

I would like to point out a golden rule - this rule was recently stated by Warren Buffet. I have come across this rule from other wise men too. The rule is - be fearful when everyone is greedy and be greedy when everyone is fearful. This is true of any asset - real estate, stocks, gold.

Prashant said...

Since I mentioned gold, I would like to mention that there too is a bubble. The price now, I think is $800 and ounce and will soon go to $300.

http://www.financialsense.com/editorials/swenlin/2008/1024.html

I would like to leave you all with another question - how can we benifit from such information of which we are very sure?

Observer said...

Real assets are hard to short, unlike stocks. If one looks at stocks of realty companies and mining companies, deflation is priced in. So there may not be much advantage to shorting. Also, a bear market rally can result in a short squeeze, which would be bad unless you have enough margin to outlast the rally.

I think the best thing is to wait for the real assets to fall in price, and always be on a long-side strategy. At most you can lose some 30-40% on some of these hard assets with a long strategy, while a short strategy can lead to 100% losses, and maybe more if one goes on margin.

Shorting real gold would involve something like borrowing a gold bar from a willing person, then selling it, and then waiting for some time till the price is lower, and then purchasing the gold bar back and returning it to the person who lent it to you. This is just not practical for average people.

Markets cannot be timed on a fine level, but a macro trend analysis can definitely be helpful in timing epochal entry/exit points.

Anonymous said...

http://profit.ndtv.com/2008/10/26203403
/How-Indian-economy-is-decelera.html
Macroeconomic and Monetary Developments Mid-Term Review 2008-09 released by Reserve Bank
of India.
indicators of the slowdown:-
• Index of industrial production falls to 4.9% in April-August 2008-09 on a year-on-year basis as against 10 % during April-August 2007-08.

• Manufacturing sector recorded 5.2 percent growth as against 10.6 % during the corresponding period last year.

• Power sector grew 2.3% as against 10.6% last year.

• Infrastructure grew 2.3% as against 7.1% during the corresponding period last year reflecting the deceleration except in coal.

• According to the First Advance Estimates, the kharif foodgrains production during 2008-09 was placed at 115.3 million tonnes as compared with that of 121.0million tonnes during 2007-08 (Fourth Advance Estimates
Available information on the leading indicators of services sector activity during 2008-09 so far suggest healthy growth in respect of some indicators such as railway revenue earning freight traffic, commercial vehicle production, telephone connections and export cargo handled by civil aviation as compared with the corresponding period of 2007-08.
On the other hand, growth decelerated in respect of cargo handled atmajor ports and other indicators of civil aviation excluding export cargo.
Some deceleration was also observed in tourist arrivals and production of cement and steel.