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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  • Banks Hike Home Loan Interest Rates

    The banks have hiked home loan interest rates by 25 bp or 0.25%. The banks are ING Vysya, IOB, Dena Bank & latest one is ICICI. The new interest rates of ICICI will be applicable from 4th July 2011. Man, even HDFC is now cotemplating a hike in interest rates.

    It is said that interest rates may go up by another 0.75% by this year end.
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  • Originally Posted by realacres
    It's official now, property prices are dipping according to latest Residex released by the National Housing Bank.

    Here is the link:-

    Property prices begin to dip, shows index - The Times of India



    Good article. It says

    It was only Mumbai, Delhi, Ahmedabad, Chennai, Lucknow and Pune that bucked the falling trend.

    btw has TOI now become a good newspaper ? earlier it was eqauted to something not so good on this forum.
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  • Originally Posted by compuwalah
    Good article. It says

    It was only Mumbai, Delhi, Ahmedabad, Chennai, Lucknow and Pune that bucked the falling trend.

    btw has TOI now become a good newspaper ? earlier it was eqauted to something not so good on this forum.


    Looks like a case of Sour Grapes?
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  • Originally Posted by Venkytalks
    I did what was easy.

    Do you have New York prices? Do you have historical Bombay prices? I dont. I cannot compare data I dont have.

    If you have the data, go ahead and compare over the years. I would be interested to see your results.

    I dont even have pre 1980s data for Delhi. Nor is it available on the net.

    Even historical USD Rupee exchange rates are difficult to find. I had to guess from my memory that it was 12 Ruppes to the dollar when I was a kid - which year I have no recollection.


    Stoxx, even I said US prices will rise to cover 30% of the imbalance. I put the time frame for this at 5 years in my post.

    As for RE continuing to hold value - I agree on the long term - any real asset will keep some value when currencies are debasing with the global epidemic of currency printing.

    That is why I made some RE investments after abhorring the sector (as being only fit for madmen and criminals) for 8 long years.


    Good mathematical analysis but less logical - no one cared about India 30 years back and now its rise to an almost superpower, world stature and it being the 2nd faster growing economy set to become the top 3-4 economies by size in next 10 years has to be accounted. The 30-30-30 logic will not hold good - there may be some correction in Indian RE and some rise in US RE may happen because of the current situation though...

    R
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  • Originally Posted by rajatk
    Looks like a case of Sour Grapes?


    The caption under the photogrpahs says it all. That means that the Pune prices have not yet reached full potential since they kept on rising whereas it fell at other places (obvious from different posts on this forum though few cases of price negotiations were claimed). This has been a major complain two years back where people were demanding that since price has fallen everywhere else why not in Pune. So seems the dynamics of property prices differs according to the city. Though a small correction may happen just to start new wave of price rise. Looking at trend seems it seems things will settle at a average rate to 4K (higher in prime locations, lower in outskirts).
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  • Originally Posted by compuwalah
    The caption under the photogrpahs says it all. That means that the Pune prices have not yet reached full potential since they kept on rising whereas it fell at other places (obvious from different posts on this forum though few cases of price negotiations were claimed). This has been a major complain two years back where people were demanding that since price has fallen everywhere else why not in Pune. So seems the dynamics of property prices differs according to the city. Though a small correction may happen just to start new wave of price rise. Looking at trend seems it seems things will settle at a average rate to 4K (higher in prime locations, lower in outskirts).


    I think becoz Mumbai and Pune, the buyers are mostly from business class. they don't mind paying hefty prices to get RE, as they know they can squeeze this money from their customers. It only pinches the hardworking and honest middle class.

    In most of other towns such as Bangalore, the majority of buyers are IT folks and middle class money-saving folks, who till now used to think the same, but now due to recession 2 years back, they have grown wiser and very carefully treading the RE investment path. That's why rates here have stagnated (very few have reduced by 5-10%) for last few months. Also just if I leave my number at any builder, he just asks his croonies to call me every alternate day. That's how desperate they have become.

    Even the investors are ready to negotiate the prices. 10% is easily done but waiting for more. After all it is my hard earned money and earned thru honest means. :)
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  • Demand for Home Loans Will Decline: Experts

    June 29, 2011
    IRN

    At the peak of the global housing crisis in 2008, a group of executives at State Bank of India (SBI) were busy devising a new home loan scheme meant to boost the sluggish demand. The growth in housing loans had fallen from a high of 31.2 per cent in December 2006 to 4.1 per cent in March 2009. After State bank of India (SBI) launched its special home loan scheme, home loan portfolio of banks in India rose 30 per cent on a year on year basis till September 30 2010, against 20 per cent in 2009-10, according to data from the Reserve Bank of India (RBI). In 2011, as the housing market in the West slowly picks up, the Indian market may be in for slack. SBI withdrew its home loan scheme with effect from May, after RBI raised concerns on the borrowers’ ability to repay them over longer tenures. After a period of sustained growth, bankers expect a moderation in home loan growth in the coming months. Rising interest rates and property prices are once again set to hit demand for home loans, say bankers.

    The impact of the slowdown is already visible in the priority sector lending portfolio of banks. According to RBI data, the growth in outstanding credit of banks, under priority sector housing loans, halved to 6.80 per cent in April, against 11.90 per cent in the year-ago period. SBI, the country’s largest public sector bank, expects a moderation in the growth in home loans. “We expect a slowdown, a moderation in the home loan market. It has been evident in the last two quarter. It is difficult to estimate the extent of the moderation,” said Diwakar Gupta, managing director and chief financial officer, State Bank of India.

    Close to 30 per cent of the home loan market in India is currently accounted for by the teaser home loan market, according to Monish Shah, director, Deloitte, India. “The withdrawal of teaser loans would have a marginal negative impact on the demand. After 2009, in the two-to three year period, the home loan growth was mostly seen in the teaser home loan segment. It gained about 20-30 per cent market share, which is an absolutely phenomenal growth,” said Shah. SBI launched the special home loan scheme in 2008, under which it offered an interest rate of 8.5 per cent for a loan of Rs 5 lakh and 9.25 per cent for a loan of Rs 20 lakh, with a reset clause after every five years. The scheme was tweaked several times since then.

    High interest rates are also expected to play a dampener. “Demand for home loans is likely to be impacted due to high interest rates. The impact would be more visible in the next two months. Both investors and home loan buyers are likely to wait for few months before buying property. In the last one year, the burden of easy monthly installments for borrowers has gone up by 15-20 per cent,” said S L Bansal, executive director, United Bank of India. The slowdown in home loan disbursements is already visible. The home loan growth recorded by United Bank of India till April was about 10-11 per cent on a year-on-year basis, against 12-13 per cent last year. R V Verma, chairman and managing director, National Housing Bank had said there was a slowdown in the growth in housing loans due to rising interest rates and property prices.

    Smaller banks expect a level-playing field after the exit of teaser home loans from the market. Allured by lower interest rates, several home loan customers had shifted to teaser loans. “Now, we hope our customers will remain with us. Earlier, we saw some customers moving to teaser home loans. “During the first few months, the demand for housing loan is generally low, but for the whole year, we expect a reasonable growth in the home loan portfolio,” said M Narendra, chairman and managing director, Indian Overseas Bank. Rising property prices have also dented the prospects of robust home loan growth. According to realty consultant Cushman & Wakefield, residential property prices in Delhi-national capital region and Mumbai saw prices rise 36 per cent in 2010 on good demand. The trend was reflected in loan disbursements for banks as well. Housing Development Finance Corporation, one of the biggest players in the home loan market, saw fourth-quarter net profit rise 27 per cent rise last year.

    In some markets, the outlook on property prices is expected to correct, while the interest rates are high. This could lead to a slowdown,” said Vibha Batra, co head, financial sector ratings, Icra. “A lot of factors would contribute to the slight slowdown in credit off-take. Affordability, interest rates and uncertainty in the real estate market are some of the reasons. So, going forward, there would be a slowdown in the home loan market for sure,” Deloitte’s Shah said.
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  • Westerners becoming more competitive....

    Cheap labour and low rent make the Lancs town better value than the Indian city, the firm claims


    Chief Nigel Eastwood said: "India isn't that cheap any more. As call centres have grown, real estate prices have gone up massively, while salaries have also crept up."


    India call centre axed for Burnley | The Sun |News

    With current Salary people can't afford house & comapnies are closing down due to high salary. :bab (38)::bab (38)::bab (38):
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  • Originally Posted by khbarilal
    Cheap labour and low rent make the Lancs town better value than the Indian city, the firm claims


    Chief Nigel Eastwood said: "India isn't that cheap any more. As call centres have grown, real estate prices have gone up massively, while salaries have also crept up."


    India call centre axed for Burnley | The Sun |News

    With current Salary people can't afford house & comapnies are closing down due to high salary. :bab (38)::bab (38)::bab (38):


    It has been my prediction for quite a while that all BPO jobs will go back to USA and UK. It is the only work poor people of UK and USA can do.

    Without currency depreciation, India will also not be able to compete with USA in IT sector. Massive college admissions in IT is USA currently will hit the job market in 2 years.

    But I do expect our currency to depreciate to make up for this difference.

    Net net IT sector will still perform.

    BPO may not - we cant handle calls properly and will dwindle or go to phillipines
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  • Government’s orders: Pay only for carpet area, not super built-up

    This monsoon session, the government is planning to introduce a new consumer-friendly policy that aims to put developers on a tight leash while forcing them to sell homes on the basis of carpet area only.

    Called Real Estate Regulatory Authority (RERA), the policy will have provisions for stricter punishment for those who refuse to tow the line, and make it easier for home buyers to seek legal recourse. Confirming the developments State Housing Minister Sachin Ahir told Mumbai Mirror, "Government has made a change in the draft model which will keep a check on developers who sell flats on the basis of built-up area."

    Over the years, home buyers have been arm twisted into paying for more than what is the actual area of the flat. A 1000 square feet house in Juhu priced at Rs 25,000 per square feet, should cost you Rs 2.5 crore. But thanks to the inclusion of the built up area which puts the saleable area of the flat at 1350 square feet, you have to pay Rs 3.37 crore.

    Though the civic body has banned the sale of flat on the basis of built up area, the builder lobby has largely ignored the diktat, thanks to the lack of punitive measures.

    Ahir said, "No one is following the rules as the government has no control over the sector. That's why we are planning to introduce RERA in this session. This will also have various consumer-friendly provisions."

    Read complete story here:-

    Government’s orders: Pay only for carpet area, not super built-up - The Economic Times
    CommentQuote
  • Originally Posted by Venkytalks
    It has been my prediction for quite a while that all BPO jobs will go back to USA and UK. It is the only work poor people of UK and USA can do.

    Without currency depreciation, India will also not be able to compete with USA in IT sector. Massive college admissions in IT is USA currently will hit the job market in 2 years.

    But I do expect our currency to depreciate to make up for this difference.

    Net net IT sector will still perform.

    BPO may not - we cant handle calls properly and will dwindle or go to phillipines


    Venky,
    I have been reading your posts since long and you are predicting currency depreciation, though I bet this is gonna happen anytime soon.
    If you see the amount of FDI is happening in India is a LOT, given so much supply of dollar how is it possible that Re will depreciate?
    and I don't think FDI is gonna lessen, FMCG is opening up, MF's limit for FDI has been opened up.
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  • Again if to assume that value of Rupee goes down then-
    1. Oil will be costlier
    2. inflation will increase
    3. growth will decrease
    4. FDI will decrease
    5. Venky's points holds true

    But how is that going to happen given FDI is robust and growth is still intact?
    All 5 pointers holds true if growth stall, but question is- is it going to happen?
    CommentQuote
  • Originally Posted by realacres
    This monsoon session, the government is planning to introduce a new consumer-friendly policy that aims to put developers on a tight leash while forcing them to sell homes on the basis of carpet area only.

    Called Real Estate Regulatory Authority (RERA), the policy will have provisions for stricter punishment for those who refuse to tow the line, and make it easier for home buyers to seek legal recourse. Confirming the developments State Housing Minister Sachin Ahir told Mumbai Mirror, "Government has made a change in the draft model which will keep a check on developers who sell flats on the basis of built-up area."

    Over the years, home buyers have been arm twisted into paying for more than what is the actual area of the flat. A 1000 square feet house in Juhu priced at Rs 25,000 per square feet, should cost you Rs 2.5 crore. But thanks to the inclusion of the built up area which puts the saleable area of the flat at 1350 square feet, you have to pay Rs 3.37 crore.

    Though the civic body has banned the sale of flat on the basis of built up area, the builder lobby has largely ignored the diktat, thanks to the lack of punitive measures.

    Ahir said, "No one is following the rules as the government has no control over the sector. That's why we are planning to introduce RERA in this session. This will also have various consumer-friendly provisions."

    Read complete story here:-

    Government’s orders: Pay only for carpet area, not super built-up - The Economic Times



    Sir ji, what if builders increase the psf rate for carpet area.

    net net it'll be same. :bab (6):
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  • State Housing Minister Sachin Ahir


    Do u know who he is ? He is Arun Gowli's bhanja. So will he be able to pass that bill. I highly doubt it. They give from one end and take more from the other end.
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  • Originally Posted by saggii
    Again if to assume that value of Rupee goes down then-
    1. Oil will be costlier
    2. inflation will increase
    3. growth will decrease
    4. FDI will decrease
    5. Venky's points holds true

    But how is that going to happen given FDI is robust and growth is still intact?
    All 5 pointers holds true if growth stall, but question is- is it going to happen?


    Hi Saggi.

    Predictions are frequently proved wrong by the market. In the end markets are full of irrational people and so markets tend to remain irrational for very long periods.

    So as I keep screaming currency depreciation, FDI has been aggressively coming in, our forex reserves have risen and Rupee has risen to 44.50 or so to the dollar.

    My predictions are always long term and indicative of more safer direction. So if currency is likely to depreciate, one should accumulate gold and IT stocks.

    As Rupee is currently appreciating, gold prices in Rupee are falling and IT stocks are also likely to fall. This gives one an opportunity to enter these stocks at attractive prices and gives a chance to spend a year or two accumulating these assets until markets revert to the rational expectation.

    With this type of thinking, you will not lose money - so safety of your investment is rock solid.

    At current juncture, the best investment targets are therefore IT stocks, gold and RE (but FD remains the best for 2011)
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