Saturday, April 12, 2008

Lessons From Japan's Housing Bubble - IV

Bubble Survivors: Marooned in Distant Suburbs

A fallout of the housing bubble was the creation of the financially marooned.

In the 1980’s, land prices in Japan rose to such astronomical levels, that the only places people could afford were far away from central Tokyo. Many individuals were forced in to deep debt by buying poor quality homes in areas that were hours away from their offices. These were the only places they could afford.

Subsequently, when a fall in Tokyo's real estate led to severe declines in property values in the outlying areas., people who purchased these properties were stuck, and could not sell them since they now fetched less than the balance on their mortgages, taken over a decade or more ago. Many till today are trying to make the best of life in homes that are far away from work and for which they had grossly overpaid.

Read the next story in this series: All the King's Horses and All the King's Men

This article has been developed from the October 2005 issues of the New York Times. You can read it here

Posted by Eclectic Investor at 5:37 PM  

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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