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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  • When to buy a house

    1) Do I have a steady source of income? Have I been regularly employed for the last 2 to 3 years? Is my source of income reliable and credible?

    2) Do I have a good past record of paying my credit card bills, other EMIs and payments? Remember that each loan provider will check your CIBIL report and any discrepancy is likely to show up there and obstruct a smooth home loan sanction!

    3) Do I have a few long term debts like a car loan or a personal loan? If your repayment of these have been good, you are more likely to get that home finance sanctioned.

    4) Do I have money saved for a down payment, registration and other extra charges? These will, as a thumb rule work out to be about 30 percent of the total home value. So, if you are planning on buying a home worth INR 20 lacs, you should have INR 6 lacs ready with you to go ahead. Banks and home loan institutions will only offer 80 percent finance maximum depending on your repayment capability.

    5) Finally, do I have the ability to pay the home loan EMI every month, plus the other costs that come associated with owning a home?

    If your answer to all the above questions is a yes, its great news. You are ready to buy your home now. Happy house hunting!
    CommentQuote
  • Are these clauses illegal now??

    Are these clauses illegal now??

    * Forfeiture of amounts paid by buyers in numerous cases.

    * The builder can change land use or layout plan and alter the structures unilaterally.

    * No exit option for the buyer except for non delivery of possession. This option merely entitles the buyer to refund of the amount paid without interest.

    * The builder would control all common areas and maintenance.

    * The builder can unilaterally create third party rights.

    * No transparency on External Development Charges.

    * The builder can cancel the entire project and get away without paying any penalty.
    CommentQuote
  • Originally Posted by bhuvang
    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.

    This is the first excuse by RE bulls. We have ample of land to house each & everyone in the country with spacious homes. Problem is with land laws & develop-able land. Today, there are large tracts of land getting stuck due to some pathetic govt laws. This is deliberately done by Govt to benefit the builders. If land laws are like US, building house on own (like in US) will be preferred & flats will be the last option & especially for those who want to stay in CBD areas. Man, show me a single project like BR where highrises are coming in remote areas in US.
    Eg. In New York, the highrises are in Manhattan....shift towards Bronx, about 1.5 km from here, the height of building dips. Go to Staten Islands, you start seeing independent houses & further towards New Jersey, there will be Villas around.

    Finally, the RE prices rose by 400% from 2004-2008, did the population of country too rose by 400% or did the land mass got reduced by 400%, encroached due to sea, river etc. ?? Also, this being the case, why did US prices fall by 50% ?? Did their population fell by 50% or land increased by 50% ?

    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.

    Take the classic case of UK. There are so many developed areas outside London ? Same is the case with Italy, where development has taken place outside Rome & Milan.

    It is not urbanization which makes country grow. It is more equitable distribution of infra across the country which helps the things move. Take case of Gujarat, where infra has developed to smaller towns where several industries have come up, thanks to better infra being developed there.

    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.

    And what about their take home income : home loan EMIs ratio ?? It is just because they over-leveraged that sub-prime crisis took place. Do you feel that Indians too should do the same & have such version 2.0 here too ?

    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.

    And the per capita income is not even 1/10 of that of US.

    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.

    Agreed, but take a survey & find out how many people want to work for builders & banks for 20 yrs.

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

    Yes, if policies are set right. Not only 1150 mn, we can fit in 2300 mn too, in same land mass.

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

    But black money holders too want returns from their investment. Had this not been the case, why did many HNIs withdrew from RE ??

    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):

    RE demand will always be there provided there is no big difference between EMIs & rent, as it was during 2004-05.

    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.

    Forget US banks, see the NPAs in balance sheets of Indian banks after 30th of this month. I have confirmed news that SBI & ICICI are leading banks having large NPAs in RE segment.

    Btw, here are some other factors you need to consider between US & India:-

    In US, you can file for bankruptcy & walk away. Same is not the case in India,

    In US, you have social security. In India, if something happens to you say job loss, you are left alone to fend for yourself, which means you need to save more than US citizens,

    Interest rates are very low in US, so at the end of the tenure, the principal amount is far more than interest component. It is inverse in case of India where for long duration, interest amount is more than principle amount.
    CommentQuote
  • Another exhibi

    DNA had RE exhibi this week. Ad mentioned something like 'Sun rises from East, so how about having a home in East ???':D

    Did anyone go to this exhibi ? Why are builders having some many RE exhibis one after another ? Guess :D.
    CommentQuote
  • Is it ? Is it Not ?

    Thanks to fellow boarders here. I am enjoying some really good discussions here. I should have been more active in the forums here in terms of following as well as posting :) Any how, I just wanted to post this link of really well written article by a respected economist which compares Indian housing statistically with other markets as well as local factors. It does not decide between whether it's a bubble or not but still a very engaging read :

    Are India
    CommentQuote
  • Originally Posted by bhuvang
    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 ?


    I did say we have shortage but rising income levels are driving the consumption .

    By the way , I'm born and brought up in Pune and might be mistaken here , but the infra that you're talking about which has consumed huge quantity of land is nowhere to be found in Pune at the very least .

    US banking regulations allowed banks to lend to people whose repaying capability was low by giving loans at lower rates initially and then the interest rates would reset after a few years making EMIs unaffordable .
    CommentQuote
  • Originally Posted by realacres
    This is the first excuse by RE bulls. We have ample of land to house each & everyone in the country with spacious homes. Problem is with land laws & develop-able land.
    Originally Posted by realacres


    In developed countries infrastructure is developed first......big wide roads.....sevage system....electricity.......then comes people and market...here we have the reverse case.......if there is proper infrastructure people would happily build their own home and would prefer travelling a little more to work rather tha buying flats at ridiculous prices.

    It is not urbanization which makes country grow. It is more equitable distribution of infra across the country which helps the things move. Take case of Gujarat, where infra has developed to smaller towns where several industries have come up, thanks to better infra being developed there.

    But still growth in India is not well distributed.
    For example take case of education , IT and manufacturing.
    Pune could have had one of them like education hub….The rest two could have been established at other location like manufacturing in aurangabad or IT in Nashik or Nagpur…
    But no all of them are concentrated aroung Mumbai and Pune driving people into these cities and burdening the infra and resources.


    Forget US banks, see the NPAs in balance sheets of Indian banks after 30th of this month. I have confirmed news that SBI & ICICI are leading banks having large NPAs in RE segment.

    Agreed.



    Replied in Green :)
    The government should ensure that the development is pan state.....or else what comes as an outcome is Naxalites
    CommentQuote
  • 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) -

    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.


    For (5) there will come a time, when we also like US folks won't find it shameful to stay in a rental apartment. Today we are forced to prefer to buy some home by our Parents/Spouse/Friends etc. Everytime I call my Mom in Thane, she says "her friend was enquiring whether I bought a house or not." I am not sure, why is her friend interested in my buying a house. Why can't she mind her own business :bab (38):, when her own son is still staying on rent . But when things go beyond affordability, we don't have much choice. I see the trend here also. Today there are so many properties which we can have on rent. Sometime later, even builders will find it profitable to rent their unsold inventories.

    In US folks like to stay rental becoz many of them cannot afford to buy. Also they don't have long term commitment to their spouse. Very few couples their stay together for life, unlike in India.

    Also our cities become congested and it puts pressure on infrastructure, so even after buying, there is no peace of mind. Unlike in US.

    There are many such points, hence we shouldn't compare with the living standards of US. Only concentrate on our strengths/weakness.

    If RE is hyped, then it has to come down. And in my opinion. RE is atleast 300% :D hyped, if not more.
    CommentQuote
  • Originally Posted by realacres
    This is the first excuse by RE bulls. We have ample of land to house each & everyone in the country with spacious homes.

    True

    But there is a qualifier.

    Developed countries have very high density cities which exist because of very efficient transport and high rises.

    This requires huge capital expenditure - India is deficient in capital and such cities also need law abiding people - not for people who dont adhere to norms, then it only causes collapse of the city infrastructure (Like Delhi and Bombay).

    India practices very low density suburb like city building. India does not have enough land for this.

    USA has 10 Acres per capita (2.5 billion acres for say 250 million population). Plus 90% population lives in high density cities.

    India has 0.5 Acres per capita (750 million acres for say 1.5 billion people). This includes forests and farmland.

    India barely grows enough food for itself because of poor productivity. We survive because our land is so fertile that you get 3 crops a year.

    England with same density (50 million population, 25 million acres) cannot feed itself, being single crop land.

    Problem is with land laws & develop-able land. Today, there are large tracts of land getting stuck due to some pathetic govt laws. This is deliberately done by Govt to benefit the builders.

    True

    If land laws are like US, building house on own (like in US) will be preferred & flats will be the last option

    Most of USA lives in apartment blocks of 4-6 stories = our DDA flat (nicely done with good looks, but same size)

    & especially for those who want to stay in CBD areas. Man, show me a single project like BR where highrises are coming in remote areas in US.

    All US cities started off being remote. Despite huge land, they went for high rises. That is how modern cities are - high density. Buiding suburbs is wastage of land.

    Eg. In New York, the highrises are in Manhattan....shift towards Bronx, about 1.5 km from here, the height of building dips. Go to Staten Islands, you start seeing independent houses & further towards New Jersey, there will be Villas around.

    Finally, the RE prices rose by 400% from 2004-2008, did the population of country too rose by 400% or did the land mass got reduced by 400%, encroached due to sea, river etc. ?? Also, this being the case, why did US prices fall by 50% ?? Did their population fell by 50% or land increased by 50% ?


    Take the classic case of UK. There are so many developed areas outside London ?

    No, 1/5th of UK lives in London. Same will happen with Delhi and Bombay - they will be super cities

    Same is the case with Italy, where development has taken place outside Rome & Milan.

    It is not urbanization which makes country grow.

    Not true. Productivity increase - in history - has accompanied urbanisation. Future trends unlikely in backward country like India which is food deficient.

    It is more equitable distribution of infra across the country which helps the things move.

    Not true. Its always easier to provide full concentrated dose of infrastructure in a city. Vertical growth is essential - India has failed in this

    Take case of Gujarat, where infra has developed to smaller towns where several industries have come up, thanks to better infra being developed there.

    "Small" towns of Gujrat are "big cities" by population


    And what about their take home income : home loan EMIs ratio ?? It is just because they over-leveraged that sub-prime crisis took place. Do you feel that Indians too should do the same & have such version 2.0 here too ?

    India is poor. They should buy what they can afford.

    And the per capita income is not even 1/10 of that of US.

    1/50th actually. The recent 10% fall in Rupee means in dollar terms, our GDP growth was negated - India did not grow in 2011 at all


    Agreed, but take a survey & find out how many people want to work for builders & banks for 20 yrs.


    Yes, if policies are set right. Not only 1150 mn, we can fit in 2300 mn too, in same land mass.


    But black money holders too want returns from their investment. Had this not been the case, why did many HNIs withdrew from RE ??


    RE demand will always be there provided there is no big difference between EMIs & rent, as it was during 2004-05.

    This is not the historical trend in India - we havent developed enough to justify change in the economics of our housing market


    Forget US banks, see the NPAs in balance sheets of Indian banks after 30th of this month. I have confirmed news that SBI & ICICI are leading banks having large NPAs in RE segment.

    Probably true

    Btw, here are some other factors you need to consider between US & India:-

    In US, you can file for bankruptcy & walk away. Same is not the case in India,

    But courts take 7 years on average to decide a property case = banks are screwed if you default and self occupy the house.

    That is why banks prefer unoccupied under-construction loans - easier to foreclose

    In USA foreclosure takes just a few months

    In US, you have social security. In India, if something happens to you say job loss, you are left alone to fend for yourself, which means you need to save more than US citizens,

    True

    Interest rates are very low in US, so at the end of the tenure, the principal amount is far more than interest component. It is inverse in case of India where for long duration, interest amount is more than principle amount.

    True. For 15 year loan, interest is about 80% of the property cost = approx. double of the cost



    Replied in red
    CommentQuote
  • Originally Posted by Venkytalks
    Replied in red


    In 2007 everyone was talking about why indian stock markets will NOT fall down due to huge black money waiting to enter through FII route , and markets fell even then ....and markets regained not because of black money but because of Ben bernanke.
    once indian RE will fall as it will surely , then all the people will start coming out with reasons for the fall albeit in retrospect.
    CommentQuote
  • Originally Posted by mymarji
    For (5) there will come a time, when we also like US folks won't find it shameful to stay in a rental apartment. Today we are forced to prefer to buy some home by our Parents/Spouse/Friends etc. Everytime I call my Mom in Thane, she says "her friend was enquiring whether I bought a house or not." I am not sure, why is her friend interested in my buying a house. Why can't she mind her own business :bab (38):, when her own son is still staying on rent . But when things go beyond affordability, we don't have much choice. I see the trend here also. Today there are so many properties which we can have on rent. Sometime later, even builders will find it profitable to rent their unsold inventories.

    In US folks like to stay rental becoz many of them cannot afford to buy. Also they don't have long term commitment to their spouse. Very few couples their stay together for life, unlike in India.

    Also our cities become congested and it puts pressure on infrastructure, so even after buying, there is no peace of mind. Unlike in US.

    There are many such points, hence we shouldn't compare with the living standards of US. Only concentrate on our strengths/weakness.

    If RE is hyped, then it has to come down. And in my opinion. RE is atleast 300% :D hyped, if not more.


    Dude, i agree with you that there will come a time when living on rent will become widely socially acceptable. Infact, changes can already be seen all around us.

    The primary reason for this higly work-force, guys like us who are ready to relocate to another city for better job prospects. Centralization in banking services have made the task lot easier. Hence, u may be born/bought in Mumbai, can have ur first job and salary a/c in Bangalore, and, still accept job offer to migrate to Delhi without much hiccup.

    Our parents have lived in times when there were not many job opportunities across cities, and hence our dads were pretty much happy with job in same city where they reside. For them, living with family was more important and money was secondary.

    So yes, time will come when social stigma attached to rental living would be gone.

    Besides, i was not comparing living std of US & India, bcoz personally i believe we won't reach those std even in next 10 yrs (may be 20). My point was in support of why RE is in long-term bull. And it was just one of the many points. :bab (6):
    CommentQuote
  • Originally Posted by panks
    Thanks to fellow boarders here. I am enjoying some really good discussions here. I should have been more active in the forums here in terms of following as well as posting :) Any how, I just wanted to post this link of really well written article by a respected economist which compares Indian housing statistically with other markets as well as local factors. It does not decide between whether it's a bubble or not but still a very engaging read :

    Are India


    Hi Chap, your article has just 3 blog replies, two are just single lines. I'm posting the one that's longest -


      Sachin Says:
      01/06/2011 at 8:02 pm | Reply
      One big factor that drives real estate prices in India is India’s population and even more than that INDIA’S POPULATION DENSITY.
      Indian cities are bursting at the seams. You have compared Indian real estate sector with that in the developing counties, but I think that’s not a fair comparison.

      Developed countries do not face a land scarcity like India does. Even our neighbor China, which is a comparable economy, has much more land per citizen than India.
      There is scarcity of land in urban India, not just for housing, but also for roads and other basic infrastructure.

      Today, most of the low-income and large proportion of middle-income urban citizens want to buy a new home or upgrade to a better home, but can’t because they can’t afford it. This demand for housing is not speculative, it is pure end-user demand. Every time home prices fall a bit, new demand from these aspirants automatically comes to support the prices.

      There is a top-paying group in each category of housing – be it single rooms in chawls or 2BHK flats or row houses or bungalows.
      It is this top paying group that determines where real estate prices go.
      As long as the incomes of these top-paying groups do not fall sharply, there is unlikely to be sharp fall in home prices in India.
      In my opinion, small price corrections will happen to housing prices in India from time to time, but the bubble won’t burst unless the Indian economic bubble bursts too.
      In specific market, bubbles may exist, but these are unlikely to affect the markets in other parts of the county.

      By 2050. India’s urban population would triple. I just can’t imagine what would happen to our cities then.
    CommentQuote
  • 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 was not comparing countries. I just wanted to say that if property prices correct 30% or more then it makes sense for the people (who bought flats at peak and took 80% amount from the loan) to get default and which ultimately leads to the same situation where US was in subprise crises in 2008. And does it look like comparing countries? I would rather say it is like comparing two situations.

    For example, if someone bought 2BHK in outskirts of Pune for 50L Rs after taking 80% amount as loan from bank. And lets say same property gets available for 35L (30% down, which may be possible by end of 2012 or early 2013) then it makes sense for one to get default and let Bank take their property, as it will be less loss (lets say around 10-16L, 10L as initial money and upto 6L based on timing) or the other option will be, keep on paying interest and EMI for another 20 years and end up paying more than 1 Cr Rs for 40L loan ( in the period of 20 years). After 20 years, do you think India's per capita income will more than current US per capita income? If no, then don't expect the price of same flat (20 year old flat) will be more than 1 Cr (today's 210K $). Here I compared countries capita income as I believe that US people have more purchasing power that people in developing countries.

    I am seeing very dangerous situation in India and perhaps only Black money is the one which is holding up the India,otherwise it would have been financial and emotional disaster for middle class of India.
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  • You might want to take another look. The blog post has link to a pdf. The comments on that blog was not the reason for my post at all. The reason I did not link the original PDF because the author mentioned "Private circulation" in his pdf.




    Originally Posted by bhuvang
    Hi Chap, your article has just 3 blog replies, two are just single lines. I'm posting the one that's longest -


      Sachin Says:
      01/06/2011 at 8:02 pm | Reply
      One big factor that drives real estate prices in India is India’s population and even more than that INDIA’S POPULATION DENSITY.
      Indian cities are bursting at the seams. You have compared Indian real estate sector with that in the developing counties, but I think that’s not a fair comparison.

      Developed countries do not face a land scarcity like India does. Even our neighbor China, which is a comparable economy, has much more land per citizen than India.
      There is scarcity of land in urban India, not just for housing, but also for roads and other basic infrastructure.

      Today, most of the low-income and large proportion of middle-income urban citizens want to buy a new home or upgrade to a better home, but can’t because they can’t afford it. This demand for housing is not speculative, it is pure end-user demand. Every time home prices fall a bit, new demand from these aspirants automatically comes to support the prices.

      There is a top-paying group in each category of housing – be it single rooms in chawls or 2BHK flats or row houses or bungalows.
      It is this top paying group that determines where real estate prices go.
      As long as the incomes of these top-paying groups do not fall sharply, there is unlikely to be sharp fall in home prices in India.
      In my opinion, small price corrections will happen to housing prices in India from time to time, but the bubble won’t burst unless the Indian economic bubble bursts too.
      In specific market, bubbles may exist, but these are unlikely to affect the markets in other parts of the county.

      By 2050. India’s urban population would triple. I just can’t imagine what would happen to our cities then.
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  • CREDAI opposes proposal to form regulator for realty sector

    What a news:
    Chandigarh: Real estate industry body CREDAI on Saturday opposed constitution of a regulatory body for the real estate sector, saying that it would become a "breeding ground for corruption" if implemented.

    "The proposed regulatory bill will become a breeding ground for corruption (if implemented)," the Confederation of Real Estate Developers Association of India (CREDAI) President Lalit Kumar Jain told reporters here.
    CREDAI opposes proposal to form regulator for realty sector
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