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 kingmanish
    I visited A few properties over the weekend....

    The builders seem to be in no hurry to sell their flats...

    The prices are skyhigh ....and though they hint that the price is negotiable but only a few rs......

    No major correction



    Beware this thread can get you in to major losses in your life by not buying the real estate when you can.

    Current market proves beyond doubt that stocks and gold etc are not for common man to make money let alone enough money to compare returns. Also FD will eventually be eroded by inflation.

    All baseless attackers you would be ignored. All structured contrary view points welcome.
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  • All baseless attackers you would be ignored. All structured contrary view points welcome.


    I like the above sentence. :)

    I think the RE investors in Pune are mostly business folks, who don't care much of selling at a lower rate. Since the stock/finance markets are affected right now, they have no motivation of selling their RE at reduced prices to invest that money in something more beneficial. So, they can keep their RE for some more time assuming that some buyers will lose patience and buy at current prices.
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  • Realty developers expect 10-15% fall in home prices

    Realty developers expect 10-15% fall in home prices

    With a sharp decline in home sales and rising interest rates, property developers say a correction in prices is inevitable over the next couple of months.

    Niranjan Hiranandani, managing director, Hiranandani Constructions, believes the probability of a correction is more in city centres than suburbs, given the sharp spurt in property prices there.

    “If you are a real buyer and go to buy property, you will anyway get a discount of five to 10 per cent. It will get harder...I think there will be 10 to 15 per cent correction over a period of time,” said Rajeev Piramal, executive vice chairman, Peninsula Land :)

    Joe Silva, chairman of Eredene Capital-backed Tanaji Malusare City, says there could be a correction of 20 per cent in the next one month.

    Lets wait and watch...Be prepared for another hike in rate of interest.
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  • +1, I have been checking resale flats prices on portals like 99acres/magicbricks and more and more properties are now being quoted <40L slab while earlier majority of the properties (in the areas I looked for) was > 45L. Trend? I am not sure. But it does look noticeable.

    *Sigh* I will never understand people's craze to book under construction properties with possession date in 2-3 years time, pay more money and added heartburn to deal with builders.
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  • Originally Posted by shahkushan
    +1, I have been checking resale flats prices on portals like 99acres/magicbricks and more and more properties are now being quoted <40L slab while earlier majority of the properties (in the areas I looked for) was > 45L. Trend? I am not sure. But it does look noticeable.

    *Sigh* I will never understand people's craze to book under construction properties with possession date in 2-3 years time, pay more money and added heartburn to deal with builders.


    Not sure , yet . I see few quoted less but most are still outrageously quoted .
    And only basic price is quoted . Add abt 15% more to it for what it will cost to the buyer .
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  • Real estate valuations fall to new lows in Mumbai; Alok Realtors may sell Lower Parel

    http://economictimes.indiatimes.com/markets/real-estate/news-/real-estate-valuations-fall-to-new-lows-in-mumbai-alok-realtors-may-sell-lower-parel-property-at-a-loss/articleshow/10134366.cms

    Real estate valuations are falling to new lows in India's biggest real estate market - Mumbai. In what could open a Pandora's Box for the sector, Alok Realtors, the real estate arm of Alok Industries, which had bought a commercial building from Peninsula Land in Lower Parel four years ago, is now desperately trying to dispose it of even at a loss. Alok Realtors had bought the property for Rs 1,075 crore in 2007, in the middle of the property boom. A top executive in the publicly-listed Alok Industries confirmed that the company has the option of selling the property by March 2012, "even at a loss", as it has decided to exit the real estate business completely to repay the mounting debt.

    The group has already announced its decision to exit the realty business completely, given the rising debt on Alok's balance sheet.
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  • When I left US in 2005, the RE prices there fell nearly 50%, Yes, it is 50% and not a typo.

    My friend who have purchased a House in Fremont CA for nearly $ 6.5L, fell to about $2.3L. Poor guy, he is still stuck paying EMI on that high value. He had plans of returning, but cannot do it without incurring a heavy loss.

    So, I see a similar trend here due to inflation, price stagnation, RE price affordability, job prospects, slow economy etc. Though the property prices here will not fall that much. But at least the over-inflated prices will be come down to some realistic levels.

    I don't agree to buy a resale property at 200% of the original price, that too when the property has aged. Max I think it should be about 120-130%.

    Though how much ever these analysts or experts harp about the strong domestic consumption, it is a fact that our economy will also be hit by the downturn.

    What goes up, has to come down, in some way or other. :D
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  • Originally Posted by mymarji
    When I left US in 2005, the RE prices there fell nearly 50%, Yes, it is 50% and not a typo.

    My friend who have purchased a House in Fremont CA for nearly $ 6.5L, fell to about $2.3L. Poor guy, he is still stuck paying EMI on that high value. He had plans of returning, but cannot do it without incurring a heavy loss.

    So, I see a similar trend here due to inflation, price stagnation, RE price affordability, job prospects, slow economy etc. Though the property prices here will not fall that much. But at least the over-inflated prices will be come down to some realistic levels.

    I don't agree to buy a resale property at 200% of the original price, that too when the property has aged. Max I think it should be about 120-130%.

    Though how much ever these analysts or experts harp about the strong domestic consumption, it is a fact that our economy will also be hit by the downturn.

    What goes up, has to come down, in some way or other. :D


    I agree on that.

    I don't understand why do many people in India think that prices of RE can only go up? Is it because of the fact that India has not noticed some thing like what happened to US in 2008 (subprime crisis)? People say, it can't be possible in India (well people used to say that it is not possible for human to reach moon) but the fact is Indian RE market is in real danger (if not today, but any time in next 5-10 year).
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  • Originally Posted by BlotJab
    I agree on that.

    I don't understand why do many people in India think that prices of RE can only go up? Is it because of the fact that India has not noticed some thing like what happened to US in 2008 (subprime crisis)? People say, it can't be possible in India (well people used to say that it is not possible for human to reach moon) but the fact is Indian RE market is in real danger (if not today, but any time in next 5-10 year).


    Dude, comparing Indian RE with US/EU RE is like comparing Mangoes and Bananas. One is seasonal, while other is all time favourite.

    Below are the reason why Indian RE is not destined to be like US RE (atleast in current decade) -


    1. US land mass is three times that of India, while population is less than 1/3rd of what India has. So double whammy: Huge supply per demans vs Limited supply per demand for land bank.


    2. About 3/4th population of US is already urbanized compared to roughly 30% in India. And urbanization is the only known way of development in human history. No nation has ever grown without rapid urbanization (pls tell me if any). And no need to say, India is growing.


    3. Demand in US is shrinking due to rising unemployment and reducing wages in US. Whereas demand of India in increasing due to increasing salaries and employment. As per economic survey estimates, current unemployment rate in India is close to 10% which is all time low since independence. Surprisingly, 2011 unemployment rate in US is also hovering around 10% which is all time high in last 4 decades. Besides in India, wages during entire 2000s decade have increased in double digits (10-20%) annually, while in US they have hovered between 3-5% annually. Need evidence, check your salary slip of last 10 yrs vs your American frnd's.


    4. More than 50% population of India is in the working age group of 20-40 years, compared to ageing population of US. i.e. - Means increasing productivity and wealth vs Reducing productivity & increasing dependency on state/society.


    5. Majority of Indians simply don't like to stay on rent forever their life, they prefer to have their own home, atleast one. This is in stark contrast to western lifestyle, where rental living for entire life is very well socially acceptable.

    6. We are already 1150 million+. Do you think we have enough dewelling units for everyone ?

    7. And don't forget the parallel BLACK MONEY economy we have. Its our huge cushion which US/EU don't have.

    I may have forgotten some more points, but don't think need to say any more.

    Short term (1-1.5 yrs) RE impact may be negative (i expect not more that 20% correction), but medium to long term RE is a complete thumbs up from my side. :bab (22):

    And yes, those who say that US banks lended blindly without considering the earning capacity of a person, i respectfully disagree with them. But then its another topic of discussion.
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  • Originally Posted by kingmanish
    I visited A few properties over the weekend....

    The builders seem to be in no hurry to sell their flats...

    The prices are skyhigh ....and though they hint that the price is negotiable but only a few rs......

    No major correction


    Agree with you man, no major correction in Indian RE, though few exceptional deals could be there. It would just remain a dream.
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  • Originally Posted by bhuvang
    Dude, comparing Indian RE with US/EU RE is like comparing Mangoes and Bananas. One is seasonal, while other is all time favourite.

    Below are the reason why Indian RE is not destined to be like US RE (atleast in current decade) -


    1. US land mass is three times that of India, while population is less than 1/3rd of what India has. So double whammy: Huge supply per demans vs Limited supply per demand for land bank.


    2. About 3/4th population of US is already urbanized compared to roughly 30% in India. And urbanization is the only known way of development in human history. No nation has ever grown without rapid urbanization (pls tell me if any). And no need to say, India is growing.


    3. Demand in US is shrinking due to rising unemployment and reducing wages in US. Whereas demand of India in increasing due to increasing salaries and employment. As per economic survey estimates, current unemployment rate in India is close to 10% which is all time low since independence. Surprisingly, 2011 unemployment rate in US is also hovering around 10% which is all time high in last 4 decades. Besides in India, wages during entire 2000s decade have increased in double digits (10-20%) annually, while in US they have hovered between 3-5% annually. Need evidence, check your salary slip of last 10 yrs vs your American frnd's.


    4. More than 50% population of India is in the working age group of 20-40 years, compared to ageing population of US. i.e. - Means increasing productivity and wealth vs Reducing productivity & increasing dependency on state/society.


    5. Majority of Indians simply don't like to stay on rent forever their life, they prefer to have their own home, atleast one. This is in stark contrast to western lifestyle, where rental living for entire life is very well socially acceptable.

    6. We are already 1150 million+. Do you think we have enough dewelling units for everyone ?

    7. And don't forget the parallel BLACK MONEY economy we have. Its our huge cushion which US/EU don't have.

    I may have forgotten some more points, but don't think need to say any more.

    Short term (1-1.5 yrs) RE impact may be negative (i expect not more that 20% correction), but medium to long term RE is a complete thumbs up from my side. :bab (22):

    And yes, those who say that US banks lended blindly without considering the earning capacity of a person, i respectfully disagree with them. But then its another topic of discussion.


    I agree with almost everything you have said.

    But I dont get your last statement - would you care to elaborate on the "separate topic of discussion"????
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  • Originally Posted by Venkytalks
    I agree with almost everything you have said.

    But I dont get your last statement - would you care to elaborate on the "separate topic of discussion"????


    Absolutely sir, i said it bcoz of two things -

    1. It would've made my already long post futher longer, and i know many ppl simply hate to go thru so much in one go (i'm one of them) :D

    2. US RE crisis was not caused ONLY bcoz of huge lending to economically weaker people and teaser rates, but also bcoz of budling of sub-prime and regular mortages and there trading in secondary markets, a practice currently not prevelant (i think not even legally allowed) in India. And yes, job movements from US to cheap mkts like China, India, Phillipines also have big role to play in that.

    Though we can have an elaborate discussion on that as well, just wanted to segregate it. :bab (6):
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  • Originally Posted by bhuvang
    Dude, comparing Indian RE with US/EU RE is like comparing Mangoes and Bananas. One is seasonal, while other is all time favourite.



    We are already 1150 million+. Do you think we have enough dewelling units for everyone ?


    I may have forgotten some more points, but don't think need to say any more.

    Short term (1-1.5 yrs) RE impact may be negative (i expect not more that 20% correction), but medium to long term RE is a complete thumbs up from my side. :bab (22):

    And yes, those who say that US banks lended blindly without considering the earning capacity of a person, i respectfully disagree with them. But then its another topic of discussion.



    1. No , we have shortage - but most of these factors were existing in India - substantial income level increase in the last decade is the major factor behind RE boom . Abt 20 years ago in Pune you could get 3 guntha plots in 10-15 k but how many people were buying and how many builders were there ?
    Today , every third person is a builder and everybody wants multiple RE as investment , nobody is content with one .

    2. US banking regulations are different than in India , so I dont agree with this .
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  • Originally Posted by suryawork
    1. No , we have shortage - but most of these factors were existing in India - substantial income level increase in the last decade is the major factor behind RE boom . Abt 20 years ago in Pune you could get 3 guntha plots in 10-15 k but how many people were buying and how many builders were there ?
    Today , every third person is a builder and everybody wants multiple RE as investment , nobody is content with one .

    2. US banking regulations are different than in India , so I dont agree with this .


    Sir ji,

    a. 20 years ago, India's population was 85 crores, recent 2011 survey pegs it around 117 crores. Hence, growth of around 27%.

    b. Land bank is not used only for homes, but for everything. Construction of streets, roads, highways, and public utilites; factories and industries; business office space; bus depots, stations, airports, ports; agriculture, horticulture; u just name it, everything needs land. India's GDP was close to 5500 billion INR 20 yrs ago, today it stands around 67000 billion. Do you think we reached here without wide-scale consumtion of our land-bank ? I don't.

    c. You are correct when u say that everybody wants multiple RE, which again proves that RE is in long term bull phase due to demand far outstripping supply.

    d. I couldn't understand when u said "US banking regulations are different than in India , so I dont agree with this". When did i say they are same ?
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