Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by BearORBull


    The world economy is slowly recovering from recession and hence IT companies are seeing growth which means IT people will not fear about job loss. If these people continue their spending the other sectors will also able to survive through correction. The job loss and rising interest rate was imp factor in US for RE to crash which doesnt seems to be the case with indian market.


    .


    The US market was pretty heavily overleveraged causing the crash. Comparatively in India following point will not allow much fall in RE
    1) The leverage in Indian RE market is pretty less compared to USA.
    2) Indian banks and Govt has been pretty conservative overall in lending
    3) We already have example of US example in front of us hence that cautiousness is already built into the bank lending
    4) Compared to US market the population seeking housing is simply massive (though majority can't afford current prices but see next point for this)
    6) Indian economy has only on direction to go i.e. North (as it is at extreme south thanks to consevative policies for past 50 years). Thus both growth and inflation will increase hand in hand. Hence prices which may feel higher today will be norm after 3-5 years. No doubt there will be some dips here and there but overall the price levels will sustain (or even go higher if growth story happen to be stronger than expected)
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  • The one reason why not to be too bullish ...

    Originally Posted by compuwalah
    The US market was pretty heavily overleveraged causing the crash. Comparatively in India following point will not allow much fall in RE
    1) The leverage in Indian RE market is pretty less compared to USA.
    2) Indian banks and Govt has been pretty conservative overall in lending
    3) We already have example of US example in front of us hence that cautiousness is already built into the bank lending
    4) Compared to US market the population seeking housing is simply massive (though majority can't afford current prices but see next point for this)
    6) Indian economy has only on direction to go i.e. North (as it is at extreme south thanks to consevative policies for past 50 years). Thus both growth and inflation will increase hand in hand. Hence prices which may feel higher today will be norm after 3-5 years. No doubt there will be some dips here and there but overall the price levels will sustain (or even go higher if growth story happen to be stronger than expected)



    I think the long term high growth India story is long on sentiment and emotion and short on data.

    I agree that India was a central command driven, so.t shortage economy from the 50s to the 80s.

    And now that controls are being taken out gradually, we should - given the past experience of other countries - rapidly rise.

    There is one dynamic today that will effectively put a brake on this. Permanent Resource Shortage!

    The Era of cheap-energy(oil)-driven growth is probably on the wane. Unless we see a large-scale shift to alternative energies which are both, cheap as well as plentiful (not to mention co-friendly) until then we will face serious blocks to our growth. Add to this our already precarious fiscal position and you will have a weak India not having enough energy to create or sustain the growth.

    Even if energy is plentiful (say we create cheap solar and spend the trillions required to create infrastructure to distribute and work on electricity as compared to oil) I have a chart that shows that 20 of the most critical metals needed by any advanced society is nearing terminal shortages within the next 10-20 years.

    Couple this with the very high pressure that population in China is putting on resources and you are guaranteed a continued multi-decade pressure situation where high growth becomes physically impossible.

    Just taking the petrol, diesel and cooking gas situation, we all know the edge we are living on at current levels of prices. But at Rs.65 petrol is calculated to be Rs.8-10 below cost. Diesel at 42 is Rs.18 below cost. Cooking gas at Rs.375 is Rs.350 below cost!!! And these prices were set when oil was $75 per barrel. Today its around $123 (60% higher)!.

    Now that elections are over we are looking at Rs.5 rise in petrol and diesel. Gas too will be raised. But here is the catch. With oil prices expected to continue to be bullish, and current oil subsify at Rs.1,80,000 crores the govt is basically between a rock and a hard place.

    Given that Energy prices will either be high to very high, at best this economy will muddle along with brief spurts of growth and periods of stagnation.

    I would like to see arguments that convinces me how we can have high growth when the inputs are either likely to be increasingly costly as well as increasingly in short supply (one is linked to the other). And simultaneously the general population does not have the increasing purchasing power required to keep consuming more and more at higher and higher prices. So, where will th growth come from - since exports are likely to be a dead-end for some time to come. And domestic consumption is unlikely to keep up with rising prices because of weakening purchasing power in terms of salaries not rising in tandem as well as rupee weaking gradually - like Compuwala says, demand is high, but not at these prices; which is likely to be the case with an increasing number of commodities like food and other essentials as we go ahead!

    Be prepared to continue to live with a tightening belt.

    cheers
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  • I would like to see arguments that convinces me how we can have high growth when the inputs are either likely to be increasingly costly as well as increasingly in short supply


    The growth is coming from rural india- the urban indians may face the stagnation however the overall economy would continue to grow due to the breakout in rural india.

    I have seen a never before consumerism in the villages - this is a first hand experience.

    rohit
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  • I think I did not communicate properly ...

    Originally Posted by rohit_warren
    I would like to see arguments that convinces me how we can have high growth when the inputs are either likely to be increasingly costly as well as increasingly in short supply


    The growth is coming from rural india- the urban indians may face the stagnation however the overall economy would continue to grow due to the breakout in rural india.

    I have seen a never before consumerism in the villages - this is a first hand experience.

    rohit



    I was not asking where the consumption was coming from.

    I was asking where was the earned purchasing power coming from. Today's consumption is increasingly coming from credit - otherwise called spending tomorrow's earnings or actually tomorrows savings - in reality. To get the car or cll or tractor, we are borrowing against tomorrow's saving assuming its going to come guaranteed!!! And in the volumes we are spending it away in.

    Suppose tomorrow's earning is spent today, and the actual tomorrow's earnings slows down or even falls, it will lead to increasing pressure on debt servicing (in plain words, if next month's salary/ surplus is in doubt of coming OR is starting to get reduced, where will the EMI come from)?!

    Final question to make it simple and clear. If we revert credit levels to 5 or 10 years back, will we continue to see same level of consumption?

    cheers
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  • Originally Posted by wiseman
    I was not asking where the consumption was coming from.

    I was asking where was the earned purchasing power coming from. Today's consumption is increasingly coming from credit - otherwise called spending tomorrow's earnings or actually tomorrows savings - in reality. To get the car or cll or tractor, we are borrowing against tomorrow's saving assuming its going to come guaranteed!!! And in the volumes we are spending it away in.

    Suppose tomorrow's earning is spent today, and the actual tomorrow's earnings slows down or even falls, it will lead to increasing pressure on debt servicing (in plain words, if next month's salary/ surplus is in doubt of coming OR is starting to get reduced, where will the EMI come from)?!

    Final question to make it simple and clear. If we revert credit levels to 5 or 10 years back, will we continue to see same level of consumption?

    cheers


    Hi Wisemen,

    I do agree with some of your points like shortage of all kind of natural resources. However it will finish in 20 year may be ambitious claim. It seems that report has not considered recycling concept which US/Europe/Japan are strongly following these days and who are biggest consumer of these resources.

    To debate on your earning and consumption point :
    In india we are consuming according to our earning potential and reality. We do more saving than spending and even if we spend we try to invest/spend on more fundamental assets like gold, land, property etc.

    You are underestimating purchasing power of indian population. the below report says 70% of indian population would be in middle class in 15 years from now.
    India's middle class population to rise, key driver for Asia's rise by 2050 - The Times of India

    If we say purchasing power can not grow economy then we are wrong since with small population(compare to india) US (or Europe) has become number one economy in the world. The reason is overwhelming purchasing power which made them number one consumer in the world.

    The domestic demand india is having currently is unmatched and leading us to grow our economy more on domesting demand rather than on export. This is why this growth is fundamentaly good and long lasting.

    Now coming to your high inflation problem and lower purchase power. This is true and will impact growth in short term but once inflation is under control growth will come to normal. Now currently we are facing hyper inflation and 4-5% is ideal but looking at current consumption and supply it may remain at 6-7%.the higher inflation shows high growth prospect since demand is more than supply. It is just act of balancing between growth and inflation in any economy at any part of this world. If you try to curb inflation growth will affect but this equation goes hand in hand and with this problem you can see many economies like US and Japan has grown bigger and bigger. so this should not be worrying factor as it is part n parcel of any growing economy. Infact it is good sign for us that people has purchasing power.


    I have seen many lower income group people has increased their earning potential in last few years. You will find many example around like - electrician, plumber, kaamvali bai. There is big part of urban population which dependents on various middle/high class group is doing really good and i have seen their progress. These people dont buy something on credit rather they depends on their hard earned saved money. They dont invest in MF, RE, equity kind of risky assets rather invest in gold, bank fds, RDs,etc.
    If we can find how many of people like us who are part of lower/middle/higher middle class go for credit card loan/personal loan. I can say there very few who go for such kind of loans, the majority people take home loans which is obvious as they don't have huge money to buy property in cash. the home loans are not risky unless they are used for buying highly priced properties. In current situation as well people who have already invested in property in last 2 year are only at risk for not more than 20% of property value.

    In short earning will be driven by high growth and domesting demand prospect.

    There are challenges in terms of energy and resource as you said. Out of this energy is really critical but i think it will be also short term considering current energy generation plan(thermal, nuclear, etc) which will be reality after 10 years. You never know if there is tech revolution/innvoation which will bring more eco friendly and cheap source of energy which will change entire world, but lets not factor in that now as it may or may not happen. There is already research on nano particle which has foudn to be great storage capacity which may give us less oil dependendent economy as major oil is used for vehicle fuel.

    Please share your thought on this. Thanks for your reply, this is really a quality debate.
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  • RBI’s rate-hardening measure will dull Akshaya Tritiya celebrations this time

    Akshaya Tritiya: Inauspicious for Mumbai realty sector? - Moneylife Personal Finance site and magazine

    With RBI tightening interest rates further, it’s doubtful that the traditional occasion for new beginnings will change much in the troubled sector

    Friday, 6th May, is Akshaya Tritiya, traditionally an auspicious day for beginning new ventures, even making new investments. After Diwali and Gudi Padwa, Akshaya Tritiya is another occasion when there is hectic activity in the real estate sector. But this year, with the Reserve Bank of India (RBI) tightening monetary policy in the backdrop of already unaffordable prices, the woes of developers are likely to get worse.

    The RBI today increased its lending and borrowing rates by a larger-than-expected 50 basis points with the aim of containing inflation. Naturally, the real estate sector, which has been under a lot of pressure, is not happy. “Banks have already taken a cautious approach, as a result most developers now raise a larger component of their construction costs from the private sector. These loans come at a higher cost. The latest rate hike obviously means that the cost of construction will go up further for developers,” said Ashutosh Limaye, strategic consulting, Jones Lang LaSalle India. For home buyers, Mr Limaye said, the likely consequent hike in loan rates will be a further deterrent.

    RBI’s rate-hardening measure will dull Akshaya Tritiya celebrations this time. Liases Foras, the property research firm, has reported that Mumbai is going through its worst-ever period for property sales in the last two years. About 105 million sq ft of property space remains unsold and there has been a 27% drop in deals since the December quarter. The weighted average price of homes has gone up to a record Rs9,234 per sq ft. “The market is heading for bad times,” said Pankaj Kapoor, managing director, Liases Foras. “Prices must correct.

    Of course, many builders will try discounts and special offers in the hope of offloading stock, but there will not be many takers. Already, developers are offering a variety of concessions like free parking space, price discounts on bulk bookings and discounts in lieu of cash payments. Still other builders continue to hold stocks at inflated prices.

    In all likelihood, the bleak period will continue, with few customers venturing to make a purchase at the prevailing sky-high rates.

    “Interest rates on home loans are expected to increase, mirroring the 50 bps hike in policy rates. This, coupled with the steep rise in property prices over the past year will moderate the demand for home loans in the short term. Also, existing borrowers could see the instalments on their loans go up,” said Anil Kothuri, EVP , Edelweiss Housing Finance.

    For those keen on real estate investment, Mohammed Aslam, joint city head, Jones Lang LaSalle Pune, advised not to judge value of a property by the cost of land alone. “The general state of the locality, the roads, availability of shopping and grocery outlets, basic entertainment and transport facilities, schools, medical establishments should also be checked out before purchasing a property,” he said. This is probably correct, but in the current scenario, it’s the price that is the first and most important factor that will determine if very much is going to change.
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  • Wall Street Marketing Scheme…....

    India will become developing country. There will be a huge demand for every thing right from food till RE. etc..etc…

    There will be a urbanization & villagers will migrate to cities .. blah..blah…..

    11 years before, Jim came up with “BRIC” punch line & a new marketing scheme for investors. Now, every tom & dick is telling same story without understanding the facts & underlying assumptions.

    Even after such a huge subscriber base still telecom companies are missing earning estimates.:D:D
    Power generation companies are still struggling to make profit.:D
    Migrants set up slums in cities & builders are still waiting for buyers.:bab (59):
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  • Black money in real estate

    The stamp duty distorts the behaviour of parties to the transaction. Stamp duty on property is usually paid by the buyer. Hence, the buyer tries to coax the seller to agree to undervalue the property on paper (the transaction value declared to the government) and accept the rest in black money. On the other hand, sellers have an incentive in accepting black money from the buyer in order to evade the taxation of capital gains. As long as real estate capital gains are taxed, eliminating the stamp duty will influence the behaviour of the buyer but not that of the seller.


    Hence, modest changes in the stamp duty rate will not solve the problem of black money in real estate. When stamp duty is eliminated, the buyer will be comfortable with zero evasion, but the seller will still urge him to take some black money.

    Solving the Problem of Black Money in Real Estate « Citizen Economists

    If we will take a deeper look in RE business, there are 2 categories.
    1. Land dealer
    2. Builder.
    In land dealing, only cash hold value, there is no value to loan. Through cash transactions these dealer avoid capital gain/income taxes. This provides short term trading opportunities. If one will take a close look at publicly traded RE companies, they will have closely held subsidiaries which are engaged in land buying activities for which they do not report any financial information. The publicly traded companies will get land from subsidiaries & will do construction activities, which is called a builder business.
    As land deals are in cash the cash counting activity is pretty interesting. On the day of deal they will get hold of a bank cashier after office hours, took him to some hotel room where he will count the money & separate out the fake currency. In return he will get a good reward for 3-4 hrs work.
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  • Useless, I agree totally with you - buy when asset prices are low and rates are high - like where we will be in a year or so from now - and then re-finance at lower levels when rates fall. So you get double kicker - first lowering of rates to reduce cost of holding - then appreciation of your asset as cost of funds go down.


    Brilliant thinking.

    Wiseman, India has multiple negatives - illiterate people, illiterate politicians, corruption, crony capitalist, black money, govt controls etc etc - over and above resource poverty and lack of jobs.

    Stil lIndia will grow - because we will go from 500$ per capita productivity to 2000$ per capita productivity.

    Peanuts? - and yet it represents 200% growth in output - for sure - within few years, maybe by 2020.

    From 2 trillion economy to 8 trillion economy regardless of all these bottlenecks, almost on autopilot, even in the worst case scenario !!!!!

    India is entering the dream phase of its economy - even though it is a low grade kind of change from perspective of you and me sitting at 25,000 $ and more of productivity and income per annum.

    India is in a structural bull phase, reaping demographic dividends in some places, creating future demography in others, its a low grade sort of turn around story. Built on poor quality infrastructure on low levels of productivity increases per capita, massive in absolute terms.

    India's stock market is he place to be in for the next 10-20 years without a shadow of doubt.

    Trying to time entry into this market by super-imposing cyclical changes on the long term multidecade bull market is simply trying to lick the icing on a giant pastry.

    Eating part of this pastry is enough for god health. Icing might just give you a headache - or make you obese with money.

    Read my predictions for the next half century for the things which can spoil this game. Regardless, going from 500 to 2000$ is inevitable and so some good growth can be taken for granted.
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  • Rising rates add to realtors’ woes of ballooning debt..

    The real estate sector continues to face problems on various fronts. Apart from


      scams,
      corruption,
      low sales
      higher inventory,

      the real estate companies are also facing problems of higher debt liability and cash crunch.

      For example during 4QFY11, higher issues of non-convertible debentures (NCD) by mid-sized developers were reported. As per reports, the NCDs were priced at much higher rates than the bank loans. The developers are approaching Non Banking Financial Companies (NBFCs) to issue Non Convertible Debentures (NCD) at 16-20 per cent. As per National Securities Depository Ltd (NSDL) companies like Puravankara and Kalpatru have raised funds at 16 per cent pa while Century real estate has raised funds at 20 per cent pa. DLF also refinanced loans worth Rs 20.5 billion in the third quarter of 2010-11, while HDIL raised Rs 11.5 billion through non-convertible debentures to replay its old debt.


      Rising rates add to realtors’ woes of ballooning debt
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  • Auspicious day, but homebuyers stay away

    Auspicious day, but homebuyers stay away - Hindustan Times

    Good news for real home buyers.

    “Currently, there is a lot of resistance towards the prices,” said Pranab Datta, vice-chairman and managing director, Knight Frank India Limited, a real estate consultancy firm. “People are waiting for prices to come down.”

    Sunil Mantri, President of Maharashtra Chambers of Housing Industry said the sales were moderate on Friday. “It was not outstanding as it has been in the previous years,” he said. “The sales have decreased as we have increased the rates of the flats.”

    The property market is facing crises on two counts — one, builders have raised prices to unaffordable levels, and two, banks have tightened lending norms and made loans costlier for homebuyers. Sales in the city have dropped to a two-year low.

    Therefore, for real buyers or home seekers, its time to negotiate harder on total inclusive cost of flat. This is the time, where builders and developers are ready to negotiate as they are facing LARGE SCALE DISTRESS. Builders and developers are not willing to hold the current stock of inventories due to the current scenario of (9 hikes in repo rates by RBI since March 2010.) rate of interest (for fixed deposits as well as loan).
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  • Originally Posted by khbarilal
    The real estate sector continues to face problems on various fronts. Apart from


      scams,
      corruption,
      low sales
      higher inventory,

      the real estate companies are also facing problems of higher debt liability and cash crunch.

      For example during 4QFY11, higher issues of non-convertible debentures (NCD) by mid-sized developers were reported. As per reports, the NCDs were priced at much higher rates than the bank loans. The developers are approaching Non Banking Financial Companies (NBFCs) to issue Non Convertible Debentures (NCD) at 16-20 per cent. As per National Securities Depository Ltd (NSDL) companies like Puravankara and Kalpatru have raised funds at 16 per cent pa while Century real estate has raised funds at 20 per cent pa. DLF also refinanced loans worth Rs 20.5 billion in the third quarter of 2010-11, while HDIL raised Rs 11.5 billion through non-convertible debentures to replay its old debt.


      Rising rates add to realtors’ woes of ballooning debt

      Kalpataru has two projects in Pune. Kalpataru harmony and Kalpataru Splendor, both at Wakad, Pune. Many builders operate in Mumbai as well as Pune also. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.. Therefore, downward correction in prices in inevitable.
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  • Hike in interest rates will affect builder & buyer both. The buyer who has already paid through nose will either have to fund from other sources, else increase the duration of loan tenure if possible which is classic case of getting bankrupt.

    When it comes to builders, earlier, they used to sell land & repay the loan but now several builders are left with less land & the ones who want to sell aren't getting the prices they expected. In boom period, builder used to buy land from other builder even a bit at inflated rates, but it is not possible now simple because land prices are dropping. The TDR rates especially in Mumbai are already down by over 35% from their peaks.

    The correction due in the market can be seen by the simple fundamentals:- Reduction in land prices. Even in Pune, the land prices have dipped by atleast 15% in past 2-2.5 months.

    Also, lets not compare US & India head on for the simple reason that US has social security, 401k etc. while in India, if you go bust, you can't file for bankruptcy.

    Again, even if India grows, which it will in North direction, remember that the growth will come mostly from B-cities & non-IT sector. I know a senior chap who works for TCS & he informed me that TCS is now focusing in cities like Nashik rather than Pune. The same work can be done at lesser cost in B-cities.

    Last but not the least, even if the incomes rise, the RE prices should rise accordingly, if not, it doesn't mean that you spend all the hike in income on RE.

    Man, when your purchase power goes up, & if one can afford, s/he will buy Mercedes-Benz for 50L, but it doesn't make sense to buy Maruti Swift for 50L, which the builders are doing now (Selling third class projects with first class prices). Btw, sorry to bring auto in again.

    Rising incomes shouldn't mean one forgets VFM.
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  • Originally Posted by realacres

    The correction due in the market can be seen by the simple fundamentals:- Reduction in land prices. Even in Pune, the land prices have dipped by atleast 15% in past 2-2.5 months.

    Rising incomes shouldn't mean one forgets VFM.



    From Where this conclusion? any reasoning behind this statment? ohterwise all this is again a big-s**t of WORDS, without any facts!!!
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  • Well said, realacres as always.

    Originally Posted by realacres

    Rising incomes shouldn't mean one forgets VFM.
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