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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Originally posted by manzb View Post
    Rare case, where salary jumped by 10 times. On an average, one's salary gets doubled in 5-7 years (considering hikes, promotion, change of job etc).. You are a really lucky one. If the trend continues, your salary will be up another 10 times by 2024.. means 100 times of 2008 salary .. great going.. just wondering what field is getting so much in demand? I may try to impress my kids to push into that field..

    Anyway,I am too old to get into your field and look for 10 times salary in 7 years.. now working hard to keep my job as long as possible, considering that there are suggestion coming that our kind of job will be taken over by robots !!

    So everytime there is some advancement of robotics, my time with my current job reduces accordingly.. So eventually one day robots will take over my clerical job and I will be jobless.. Hopefully my kids will be in some field where Robots will not be much use..
    Well you should then persuade your kids to get into robotics . For the other question, i am into automation and business analytics profile.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by compuwalah View Post
      Let us look at figures

      2009 buy case - 35L house price, 5 L from own pocket 22L loan , say EMI of 28K for 20 years
      2016 buy case - 70L house price, 6L from own pocket 63L loan, say EMI of 58K for 20 years

      EMI calculation based on site - Home Loan EMI Calculator | Home Loan Calculator | EMI Calculator for Home Loan - ICICI Bank India

      Say 2016 guy paid average rent of 12K x 12 = 1.44L pa for 6 years = 8.5L (plus hassle of house shift, brokerage lets ignore that)

      Both got same kind of increment in their salary. Total payout by
      2009 buy case - 500 + (28 x 12 x 20) = 72L
      2016 buy case - 600 + (58 x 12 x 20) + 850 = 1.54 crore

      Extra payment by 2016 buy case = 154 - 72 = 82L

      (Have ignored the minor fact that registration and brokerage paid by 2016 buy case is more than 2009 buy plus the service tax - that will also add up to 3 to 4 L so actual loss may be around 86L plus - but since we don't want to be penny wise pound foolish - let us not get into that, look at macro picture not micro one).


      If payment of extra 82L looks cheaper to anyone , good luck to the line of thinking. Don't have any further arguments for/against it.
      I wonder why you only cherry-pick 2009. Is this because it suits your conclusion?!

      After all, its not as if only in 2009 people bought flats because you told them to.

      I recall that you were as active in 2013 telling people to buy, buy, buy!

      Now, can you also do the same calculation taking peak prices in 2013 and doing the set of calculations to show how much buyers have gained a bonanza and how much first time buyers have lost?

      And in this, please don't cherry-pick the location where best gains have happened.

      I bet you will find the story is much different and not too much in favor of the buyers.

      Waiting for the computations, Compu!!!

      cheers

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        There is always a right time to buy/sell.
        That time is when you have the need,the finance and off course the item.
        These calculations are all individual and impact of decision can vary from person to person.
        In my view the time to treat RE -flats - as an investment is gone for the time being.
        2005-2009 may have been a boom time for many buyers in Pune.
        People purchased one BHK in Tingre Nagar,Pune for 5-6 lakhs in 2005/06 and within 4 years could get upto 18 lakhs .
        In 2011, a two BHK in same place was around 35 Lakhs and in 2016 is not even 43 lakhs.
        One can derive own conclusions from this .

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Data released by Cushman & Wakefield show prices have corrected in certain pockets; home prices are lower in cities such as Mumbai, Pune and Delhi-NCR than they were in 2015.

          New launches, a tactic not used in a while given high levels of inventory, are back in fashion. But so far there’s little evidence these are translating into better sales even where prices have dropped. Sales at Sky City in Mumbai, for instance, have been dull — close to 60 flats sold of the 1,322 on offer — even though prices weren’t raised. The Oberoi Realty property had debuted successfully in October last year with 68% of the apartments sold.

          The second phase of Godrej Properties’ Trees, also in Mumbai, too hasn’t done too well — just 100 or so apartments have been picked up, less than a third of the offtake in the first phase.

          Looks like the market seems to be stagnated. As no infra improvement in Pune , Rajan not helping with the interest rates, Builders will now have to reduce rates and focus only on quality of the construction, instead of focusing on making the brochures attractive and things might fall in place,again,hopefully !

          http://www.financialexpress.com/arti...-trend/283820/

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by compuwalah View Post
            Let us look at figures

            2009 buy case - 35L house price, 5 L from own pocket 22L loan , say EMI of 28K for 20 years
            2016 buy case - 70L house price, 6L from own pocket 63L loan, say EMI of 58K for 20 years

            EMI calculation based on site - Home Loan EMI Calculator | Home Loan Calculator | EMI Calculator for Home Loan - ICICI Bank India

            Say 2016 guy paid average rent of 12K x 12 = 1.44L pa for 6 years = 8.5L (plus hassle of house shift, brokerage lets ignore that)

            Both got same kind of increment in their salary. Total payout by
            2009 buy case - 500 + (28 x 12 x 20) = 72L
            2016 buy case - 600 + (58 x 12 x 20) + 850 = 1.54 crore

            Extra payment by 2016 buy case = 154 - 72 = 82L

            (Have ignored the minor fact that registration and brokerage paid by 2016 buy case is more than 2009 buy plus the service tax - that will also add up to 3 to 4 L so actual loss may be around 86L plus - but since we don't want to be penny wise pound foolish - let us not get into that, look at macro picture not micro one).


            If payment of extra 82L looks cheaper to anyone , good luck to the line of thinking. Don't have any further arguments for/against it.
            There are some flaws above.
            1. The loans are a bit off. A 35L house with a 5L downpayment requires 30L in loans. Same for the 70L house.
            2. The person buying later would have saved money by renting. Assuming a 2% rental yield (say about 7k pm on a 35L house), the savings would be about 23k pm. And the downpayment too. Also lets assume a rental increase annually. Both of these invested at say 8% (not really a lumpsum since rent is saved over time), would have yielded say about 25L by 2016. Someone with an increasing salary and some discipline can actually save more over these seven years.
            2. The 7 year old house requires taxes and maintenance.
            3. You cannot multiply the EMIs over time like you have done. Besides, even if we take your mathematics to be correct, the 18L (25L - 7L downpayment) saved now continues to grow at 8%. Over 20 years it would be about 70-80L.


            To be fair, a real comparison would also factor in the correct computations (some kind of IRR) for the higher EMI and the lower EMI and investing the differences there too.

            But overall, my point is that it is not as black and white as you make it out to be.

            Besides, many houses have not doubled in price. And there is the cherry-picking of the time too. Picking the trough is hardly a way to make your point.
            Last edited by southsea; June 15 2016, 12:04 AM.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              As a simple thumb rule, you will make money only if the rise in prices is much higher than the cost of leverage. So doubling prices in 7 years would have been great in the US (where mortgage costs about 3%).

              But in India, where you pay 10-11%, even with the tax deduction (40K pa) etc, double the price in 7 years is not great. 2-3 years more of stagnation and you will be fairly deep in the red.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                1. RE in the US has risen by an inflation-adjusted 1% only over the last 100 years. Which is why Warren Buffet said what he did. Indian RE has a slightly higher inflation-adjusted number. Btw, this is not too high, because, you will note that, in the 70s and 80s (when you got it real cheap) inflation rates were well in the double-digits and would have had a big damping effect on the inflation-adjusted rate of increase.

                2. About the savings part as well as about the wife!

                Unfortunately, most Indians (like most Americans) do not save in any other way than via RE, which is a forced saving. Unfortunately, this is the truth.

                And yes, most wives will seriously contemplate a divorce if the husband has not bought a home by the time he is 40 AND he does not have much in savings. Unfortunately, this is also true in today's India!

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by pratap123 View Post
                  And yes, most wives will seriously contemplate a divorce if the husband has not bought a home by the time he is 40 AND he does not have much in savings. Unfortunately, this is also true in today's India!


                  Think its a modern urban myth.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Originally posted by pratap123 View Post
                    ...
                    And yes, most wives will seriously contemplate a divorce if the husband has not bought a home by the time he is 40 AND he does not have much in savings. Unfortunately, this is also true in today's India!
                    If you face this risk start giving 5gm of gold each month to the wife.

                    It will be cheaper and wife will be happier than even if you had bought the house.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by compuwalah View Post
                      Let us look at figures

                      2009 buy case - 35L house price, 5 L from own pocket 22L loan , say EMI of 28K for 20 years
                      2016 buy case - 70L house price, 6L from own pocket 63L loan, say EMI of 58K for 20 years

                      EMI calculation based on site - Home Loan EMI Calculator | Home Loan Calculator | EMI Calculator for Home Loan - ICICI Bank India

                      Say 2016 guy paid average rent of 12K x 12 = 1.44L pa for 6 years = 8.5L (plus hassle of house shift, brokerage lets ignore that)

                      Both got same kind of increment in their salary. Total payout by
                      2009 buy case - 500 + (28 x 12 x 20) = 72L
                      2016 buy case - 600 + (58 x 12 x 20) + 850 = 1.54 crore

                      Extra payment by 2016 buy case = 154 - 72 = 82L

                      (Have ignored the minor fact that registration and brokerage paid by 2016 buy case is more than 2009 buy plus the service tax - that will also add up to 3 to 4 L so actual loss may be around 86L plus - but since we don't want to be penny wise pound foolish - let us not get into that, look at macro picture not micro one).


                      If payment of extra 82L looks cheaper to anyone , good luck to the line of thinking. Don't have any further arguments for/against it.
                      Why compare A.pples with O.ranges?

                      While the 2009 guy pays 28k from savings every month, what happens to the same 28k savings for the other guy who has not bought.

                      Assuming 9% interest for 28k saved by the person who has not bought (and starting with 5L initial amount placed in deposit), he has a total amount of 41.70L in hand for the down payment today.

                      So, now this guy goes into the 70L home with 41.70L down payment and around 28L loan ONLY!!!

                      Assuming he pays back his loan in 13 years only (so he clears his loan same as the guy who bought in 2009) his EMI for 28L loan assuming 8% pa Homeloan rate is ONLY 29K which is around what the poor guy who bought the home in 2009 is paying!

                      Besides, the 2009 guy's home is now 7 years old and this guy's is brand new!!!

                      As you can see, there is LITTLE DIFFERENCE between the 2 and this is for the BEST CASE for earlier buyer as promoted by you. And the poor guy had to spend the last 7 years with NO saving in bank his (5L + each month 28k) savings going directly from employer to banker.

                      But if you take a not-so-good case of your-recommended buyer getting in in 2013 peak rates, I'm betting he is going to be worse off than the buyer who held off buying till he had enough capital to take only a small loan.

                      I'm still waiting for the 2013 price for similar home (as the one you have taken for example) so I can do your work for you and trot out the comparison.

                      So that we can finally put to rest the FIB that taking HUGE loans on TINY equity on SMALL salaries is a GREAT way to buy a home. Even in the best case situation (where one saw extraordinary home price rise) it is a ho-hum advantage.

                      FINALLY ... since the Sensxx has gone from 8000 in 2009 to 26000 today, if the guy who hadn't bought the home put his 5L + 28k pm into the simplest instrument in stock market - Nifty ETF - his 5L would have become 16.25L and the 28k each months would have by now become 50L ... totaling 66L.

                      No great skill required to put money into ETF and hold on (like FD). With this strategy he would hardly require 4L loan (which he could probably bargain down from builder/seller) and he would have home free of debt, while the early buyer still has 13 years into 28k pm to go.

                      Match that!

                      cheers
                      Last edited by wiseman; June 15 2016, 06:27 PM.

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